U.S. District Court California Northern District (Oakland) CIVIL DOCKET FOR CASE #: 4:20-cv-05309-PJH

Scholl et al v. Mnuchin et al

Date Filed: 08/01/2020

Assigned to: Judge Phyllis J. Hamilton

Date Terminated: 01/21/2021

Relate Case Cases: 4:20-cv-07531-PJH

Jury Demand: None

4:20-cv-07533-PJH

Nature of Suit: 899 Other Statutes:

4:20-cv-07779-PJH

Administrative Procedures

4:20-cv-09474-PJH

Act/Review or Appeal of Agency

Case in other court: Ninth Circuit Court of Appeals, 20-16915

Decision Jurisdiction: U.S. Government Defendant

Ninth Circuit Court of Appeals, 20-

16963

United States Court of Appeals, 20-

17077

Cause: 05:551 Administrative Procedure Act

Plaintiff Colin Scholl

represented by Kelly M. Dermody Leiff Cabraser Heimann & Bernstein LLP 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 415-956-1000 Fax: 415-956-1008 Email: kdermody@lchb.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Christina A Alvernaz , Equal Justice Society 1939 Harrison Street, Suite 818 Oakland, CA 94612 415-288-8703 Fax: Email: calvernaz@equaljusticesociety.org ATTORNEY TO BE NOTICED

Eva Jefferson Paterson Equal Justice Society 1939 Harrison Street, Suite 818

Plaintiff
Lisa Strawn on behalf of themselves and all others similarly situated

Oakland, CA 94612 415-288-8703 Fax: 510-338-3030 ATTORNEY TO BE NOTICED
Jalle H. Dafa Lieff Cabraser Heimann & Bernstein, LLP 275 Battery Street, 29th Floor San Francisco, CA 94111 (415) 956-1000 Email: jdafa@lchb.com ATTORNEY TO BE NOTICED
Rau Mona Tawatao Equal Justice Society 1939 Harrison St Ste 818 Oakland, CA 94612 Fax: 916-551-2196 Email: mtawatao@equaljusticesociety.org ATTORNEY TO BE NOTICED
Yaman Salahi Lieff Cabraser Heimann & Beirnstein LLP 275 Battery St., 29th Floor San Francisco, CA 94111 415-956-1000 Email: ysalahi@lchb.com ATTORNEY TO BE NOTICED
represented by Christina A Alvernaz , (See above for address) ATTORNEY TO BE NOTICED
Eva Jefferson Paterson (See above for address) ATTORNEY TO BE NOTICED
Jalle H. Dafa (See above for address) ATTORNEY TO BE NOTICED

V. Intervenor Pla John Galvan
Intervenor Pla Patrick Taylor also known as Patrick Thomas Intervenor Pla Robert Hastings
Intervenor Pla William H. Evans, Jr.

Rau Mona Tawatao (See above for address) ATTORNEY TO BE NOTICED
Yaman Salahi (See above for address) ATTORNEY TO BE NOTICED
Kelly M. Dermody (See above for address) ATTORNEY TO BE NOTICED
represented by Christopher Robert Pitoun Hagens Berman Sobol Shapiro LLP 301 North Lake Avenue, Suite 920 Pasadena, CA 91101 (213) 330-7150 Fax: (213) 330-7152 Email: christopherp@hbsslaw.com TERMINATED: 11/23/2020
represented by Christopher Robert Pitoun (See above for address) TERMINATED: 11/23/2020
represented by Robert Hastings 15651-041 FCI Fort Dix 5756 Hartford & Pointfille Rd. Joint Base MDL, NJ 08640 PRO SE
represented by William H. Evans, Jr. A 489-686 NorthEast Ohio Correctional Center 2240 Hubbard Road Youngstown, OH 44505 PRO SE

Intervenor Pla Kenneth Allan Fox Intervenor Pla Jamal A. Morton
Intervenor Pla Araclis N. Ayala
V.

represented by Kenneth Allan Fox 21959 Department of Corrections Mike Durfee State Prison 1412 Wood Street Springfield, SD 57062 PRO SE
represented by Edward Morris Robbins , Jr. Hochman Salkin Toscher Perez, P.C. 9150 Wilshire Boulevard Ste 300 Beverly Hills, CA 90212 310 281 3247 Fax: 310-859-5129 Email: Robbins@Taxlitigator.com LEAD ATTORNEY ATTORNEY TO BE NOTICED
Joseph A. DiRuzzo , III DiRuzzo and Company 401 East Las Olas Blvd., Suite 1400 Ft. Lauderdale, FL 33301 954-615-1676 Email: jd@diruzzolaw.com PRO HAC VICE ATTORNEY TO BE NOTICED
represented by Edward Morris Robbins , Jr. (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Joseph A. DiRuzzo , III (See above for address) PRO HAC VICE ATTORNEY TO BE NOTICED

Defendant Steven Mnuchin in his official capacity as the Secretary of the U.S. Department of Treasury
Defendant Charles Rettig in his official capacity as U.S. Commissioner of Internal Revenue
Defendant U.S. Department of the Treasury
Defendant U.S. Internal Revenue Service
Defendant United States of America
Amicus AMICI CURIAE East Bay Community Law Center

represented by Landon Monte Yost DOJ Tax Division Civil Western 555 4th Street NW Washington, DC 20001 202-307-2144 Email: landon.m.yost@usdoj.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Landon Monte Yost (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Landon Monte Yost (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Landon Monte Yost (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Landon Monte Yost (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Stephanie Powers Skaff Farella Braun and Martel LLP 235 Montgomery Street, 17th Floor San Francisco, CA 94104 415/954-4400 Fax: 415/954-4480 Email: sskaff@fbm.com

Amicus Center for Taxpayer Rights
Amicus James Luedtke

LEAD ATTORNEY ATTORNEY TO BE NOTICED
Cynthia Alicia Castillo Farella Braun Martel, LLP 235 Montgomery Street, 17th Fl. San Francisco, CA 94104 (415) 954-4408 Fax: (415) 954-4400 Email: ccastillo@fbm.com ATTORNEY TO BE NOTICED
represented by Amy Nicole Spivey UC Hastings Law 200 McAllister Street San Francisco, CA 94102 415-565-4707 Email: spiveyamy@uchastings.edu ATTORNEY TO BE NOTICED
represented by James Luedtke 06819089 United States Penitentiary U.S.P. Atwater Box-019001 Atwater, CA 95301 PRO SE

Date Filed 08/01/2020
08/01/2020 08/03/2020

# Docket Text
1 COMPLAINT against All Defendants ( Filing fee $ 400, receipt number 0971-14763041.). Filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Civil Cover Sheet)(Dermody, Kelly) (Filed on 8/1/2020) (Entered: 08/01/2020)
2 Proposed Summons. (Dermody, Kelly) (Filed on 8/1/2020) (Entered: 08/01/2020)
3 CONSENT/DECLINATION to Proceed Before a US Magistrate Judge by Colin Scholl, Lisa Strawn.. (Dermody, Kelly) (Filed on 8/3/2020) (Entered: 08/03/2020)

08/03/2020
08/03/2020 08/03/2020 08/03/2020 08/04/2020 08/04/2020

4 Case assigned to Judge Charles R. Breyer.
Counsel for plaintiff or the removing party is responsible for serving the Complaint or Notice of Removal, Summons and the assigned judge's standing orders and all other new case documents upon the opposing parties. For information, visit E-Filing A New Civil Case at http://cand.uscourts.gov/ecf/caseopening.
Standing orders can be downloaded from the court's web page at www.cand.uscourts.gov/judges. Upon receipt, the summons will be issued and returned electronically. Counsel is required to send chambers a copy of the initiating documents pursuant to L.R. 5-1(e)(7). A scheduling order will be sent by Notice of Electronic Filing (NEF) within two business days. (mbcS, COURT STAFF) (Filed on 8/3/2020) (Entered: 08/03/2020)
5 Initial Case Management Scheduling Order with ADR Deadlines: Notice: The assigned judge participates in the Cameras in the Courtroom Pilot Project. See General Order No. 65 and http://cand.uscourts.gov/cameras. Case Management Statement due by 10/30/2020. Initial Case Management Conference set for 11/6/2020 08:30 AM. (Attachments: # 1 Notice of Eligibility for Video Recording)(mclS, COURT STAFF) (Filed on 8/3/2020) (Entered: 08/03/2020)
6 Summons Issued as to Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (mclS, COURT STAFF) (Filed on 8/3/2020) (Entered: 08/03/2020)
Electronic filing error. Jurisdiction code changed to "US defendant" and county of residence changed to "Monterey" as it refers to the county of residence of the first listed plaintiff in the case data opening screen. Corrected by Clerk's Office. No further action is necessary. Re: 1 Complaint filed by Lisa Strawn, Colin Scholl. (mclS, COURT STAFF) (Filed on 8/3/2020) (Entered: 08/03/2020)
7 ADMINISTRATIVE MOTION for Leave to File a Brief in Excess of the 15-page Limit filed by Colin Scholl, Lisa Strawn. Responses due by 8/10/2020. (Attachments: # 1 Proposed Order)(Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
8 MOTION for Preliminary Injunction , MOTION to Certify Class , MOTION to Appoint Lead Plaintiff and Lead Counsel filed by Colin Scholl, Lisa Strawn. Motion Hearing set for 9/11/2020 10:00 AM in San Francisco, Courtroom 06, 17th Floor before Judge Charles R.

08/04/2020 08/04/2020 08/04/2020 08/04/2020 08/04/2020 08/04/2020 08/04/2020

Breyer. Responses due by 8/18/2020. Replies due by 8/25/2020. (Attachments: # 1 Proposed Order)(Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
9 Declaration of Kelly M. Dermody in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
10 Declaration of Mona Tawatao in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
11 Declaration of Yaman Salahi in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Salahi, Yaman) (Filed on 8/4/2020) (Entered: 08/04/2020)
12 Request for Judicial Notice re 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Salahi, Yaman) (Filed on 8/4/2020) (Entered: 08/04/2020)
13 Declaration of Colin Scholl in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
14 Declaration of Lisa Strawn in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
15 Declaration of Sandra Johnson in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)

08/04/2020 08/04/2020 08/05/2020 08/05/2020 08/05/2020
08/05/2020
08/05/2020 08/05/2020

16 Declaration of David Cowan in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
17 Declaration of San Francisco District Attorney Chesa Boudin in Support of 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/4/2020) (Entered: 08/04/2020)
18 ORDER by Judge Charles R. Breyer: Granting 7 Administrative Motion. (lsS, COURT STAFF) (Filed on 8/5/2020) (Entered: 08/05/2020)
19 ORDER OF RECUSAL. Signed by Judge Charles R. Breyer on 8/5/2020. (lsS, COURT STAFF) (Filed on 8/5/2020) (Entered: 08/05/2020)
20 ORDER REASSIGNING CASE. Case reassigned using a proportionate, random, and blind system pursuant to General Order No. 44 to Judge Phyllis J. Hamilton for all further proceedings. Judge Charles R. Breyer no longer assigned to case,. Signed by Clerk on 08/05/2020. (mbcS, COURT STAFF) (Filed on 8/5/2020) (Entered: 08/05/2020)
21 ORDER SETTING CASE MANAGEMENT CONFERENCE. Joint Case Management Statement due by 11/5/2020. Initial Case Management Conference set for 11/12/2020 at 02:00 PM in Oakland, Courtroom 3, 3rd Floor. Signed by Judge Phyllis J. Hamilton on 8/5/2020. (kcS, COURT STAFF) (Filed on 8/5/2020) (Entered: 08/05/2020)
22 Renotice motion hearing re 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Related document(s) 8 ) (Dermody, Kelly) (Filed on 8/5/2020) (Entered: 08/05/2020)
Reset Hearing as to 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel . Motion Hearing set for 9/9/2020 at 09:00 AM in before Judge Phyllis J. Hamilton. (kcS, COURT STAFF) (Filed on 8/5/2020) Modified on 8/7/2020 (jlmS, COURT STAFF). (Entered: 08/06/2020)

08/07/2020 08/07/2020 08/07/2020 08/07/2020 08/07/2020 08/10/2020
08/17/2020
08/17/2020
08/17/2020

23 AFFIDAVIT of Service for Summons served on Steven T. Mnuchin on August 4, 2020, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/7/2020) (Entered: 08/07/2020)
24 AFFIDAVIT of Service for Summons served on Charles P. Rettig on August 4, 2020, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/7/2020) (Entered: 08/07/2020)
25 AFFIDAVIT of Service for Summons served on U.S. Department of the Treasury on August 4, 2020, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/7/2020) (Entered: 08/07/2020)
26 AFFIDAVIT of Service for Summons served on U.S. Internal Revenue Service on August 4, 2020, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/7/2020) (Entered: 08/07/2020)
27 AFFIDAVIT of Service for Summons served on United States of America on August 4, 2020, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/7/2020) (Entered: 08/07/2020)
Electronic filing error. NOTE TO COUNSEL: That the correct case number for this case is: 4:20-cv-05309-PJH. Counsel need not re-file the documents, but should reference th e correct case number and Judge's initials on future filings. Corrected by Clerk's Office. No further action is necessary Re: 26 Affidavit of Service filed by Lisa Strawn, Colin Scholl, 25 Affidavit of Service filed by Lisa Strawn, Colin Scholl, 27 Affidavit of Service filed by Lisa Strawn, Colin Scholl, 24 Affidavit of Service filed by Lisa Strawn, Colin Scholl, 23 Affidavit of Service filed by Lisa Strawn, Colin Scholl (jlmS, COURT STAFF) (Filed on 8/10/2020) (Entered: 08/10/2020)
28 STIPULATION WITH PROPOSED ORDER to Extend the Time for United States to Respond to Motion for Preliminary Injunction filed by United States of America, Colin Scholl and Lisa Strawn. (Attachments: # 1 Declaration of Landon Yost, # 2 Proposed Order)(Yost, Landon) (Filed on 8/17/2020) Modified on 8/17/2020 (jmlS, COURT STAFF). (Entered: 08/17/2020)
29 ORDER GRANTING STIPULATION TO EXTEND TIME FOR UNITED STATES TO RESPOND TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION AND CLASS CERTIFICATION by Judge Phyllis J. Hamilton granting 28 Stipulation. (kcS, COURT STAFF) (Filed on 8/17/2020) (Entered: 08/17/2020)
Reset Deadlines as to 8 MOTION for Preliminary Injunction, MOTION to Certify Class, MOTION to Appoint Lead Plaintiff and Lead

08/17/2020 08/18/2020
08/18/2020 08/18/2020
08/18/2020 08/19/2020

Counsel . Response due by 9/1/2020. Reply due by 9/8/2020. Motion Hearing set for 9/16/2020 at 09:00 AM before Judge Phyllis J. Hamilton. (kcS, COURT STAFF) (Filed on 8/17/2020) (Entered: 08/17/2020)
30 NOTICE of Pendency of Other Action by Colin Scholl, Lisa Strawn (Attachments: # 1 Exhibit A - Notice Filed in ND Illinois)(Dermody, Kelly) (Filed on 8/17/2020) Modified on 8/18/2020 (jmlS, COURT STAFF). (Entered: 08/17/2020)
31 CLERK'S NOTICE VACATING MOTION HEARING. You are hereby notified that the hearing re 8 Motion for Preliminary Injunction, to Certify Class, and to Appoint Lead Plaintiff and Lead Counsel is VACATED. The matter will be taken under submission on the papers. In the event that the court determines that oral argument is necessary, the court will issue a notice to the parties with instructions on the hearing procedure at a future date. (This is a text-only entry generated by the court. There is no document associated with this entry.) (kcS, COURT STAFF) (Filed on 8/18/2020) (Entered: 08/18/2020)
32 NOTICE of Appearance by Christopher Robert Pitoun for Proposed Intervenors John Galvan and Patrick Taylor (Pitoun, Christopher) (Filed on 8/18/2020) (Entered: 08/18/2020)
33 MOTION to Intervene and, MOTION to Transfer Case Under the First-to-File Rule filed by John Galvan, Patrick Taylor. Responses due by 9/1/2020. Replies due by 9/8/2020. (Attachments: # 1 Exhibit 1 Galvan Complaint, # 2 Exhibit 2 - Galvan Motion for Class Certification, # 3 Exhibit 3 - Galvan Memorandum in Support of Motion for Class Certification, # 4 Exhibit 4 - Galvan Motion for Partial Summary Judgment, # 5 Exhibit 5 - Galvan Statement of Facts in Support of Motion for Partial Summary Judgment, # 6 Exhibit 6 Galvan Memorandum in Support of Summary Partial Summary Judgment, # 7 Exhibit 7 - Galvan & Taylor's Response to Notice, # 8 Proposed Order)(Pitoun, Christopher) (Filed on 8/18/2020) (Entered: 08/18/2020)
Electronic filing error. REMINDER TO COUNSEL: Counsel is instructed that all future filings shall bear the initials PJH immediately after the case number. Re: 32 N otice of Appearance filed by Patrick Taylor, John Galvan, 33 MOTION to Intervene and MOTION to Transfer Case Under the First-to-File Rule filed by Patrick Taylor, John Galvan (jmlS, COURT STAFF) (Filed on 8/18/2020) (Entered: 08/19/2020)
34 OPPOSITION/RESPONSE (re 33 MOTION to Intervene and MOTION to Transfer Case Under the First-to-File

08/19/2020 08/19/2020
08/19/2020 08/21/2020 08/21/2020 08/21/2020
08/26/2020

Rule ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/19/2020) (Entered: 08/19/2020)
35 Declaration of Nina Olson In Support of Plaintiffs' Opposition to Proposed Intervenors' Motion to Intervene and to Transfer this Action filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 8/19/2020) (Entered: 08/19/2020)
36 Declaration of Kelly M. Dermody in Support of 34 Opposition/Response to Motion to Intervene and to Transfer this Action filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit A Prison Population (CA), # 2 Exhibit B - Prison Population (IL), # 3 Exhibit C - Declaration of Patrick Thomas)(Related document(s) 34 ) (Dermody, Kelly) (Filed on 8/19/2020) (Entered: 08/19/2020)
37 Declaration of Yaman Salahi in Support of 34 Opposition/Response to Motion to Intervene and to Transfer this Action filed byColin Scholl, Lisa Strawn. (Related document(s) 34 ) (Salahi, Yaman) (Filed on 8/19/2020) (Entered: 08/19/2020)
38 NOTICE of Appearance by Stephanie Powers Skaff (Skaff, Stephanie) (Filed on 8/21/2020) (Entered: 08/21/2020)
39 NOTICE of Appearance by Cynthia Alicia Castillo (Castillo, Cynthia) (Filed on 8/21/2020) (Entered: 08/21/2020)
40 ADMINISTRATIVE MOTION Leave to file Amicus Brief , Administrative Motion to File Under Seal (n/a), MOTION to Alter Judgment (n/a), MOTION to Amend/Correct (n/a), MOTION for Leave to Appeal in forma pauperis (n/a), MOTION for Leave to Appear , MOTION to Appear by Telephone , MOTION to Appoint Counsel (n/a), MOTION to Appoint Custodian filed by AMICI CURIAE East Bay Community Law Center. Responses due by 8/25/2020. Responses due by 9/4/2020. Replies due by 9/11/2020. (Attachments: # 1 Exhibit A (Amicus Brief), # 2 Exhibit B (Proposed Order))(Castillo, Cynthia) (Filed on 8/21/2020) (Entered: 08/21/2020)
41 Potential Intervenors' Reply in Support of Motion to Intervene and to Transfer This Action Under the First-to-File Rule (re 33 MOTION to Intervene and MOTION to Transfer Case Under the First-to-File Rule ) filed byJohn Galvan, Patrick Taylor. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7)(Pitoun, Christopher) (Filed on 8/26/2020) Modified on 8/27/2020 (jmlS, COURT STAFF). (Entered: 08/26/2020)

08/27/2020 08/29/2020 09/01/2020
09/02/2020 09/03/2020 09/08/2020 09/08/2020
09/09/2020 09/24/2020

42 OPPOSITION/RESPONSE (re 33 MOTION to Intervene and MOTION to Transfer Case Under the First-to-File Rule ) filed byUnited States of America. (Yost, Landon) (Filed on 8/27/2020) (Entered: 08/27/2020)
43 ORDER by Judge Phyllis J. Hamilton granting 33 Motion to Intervene; denying 33 Motion to Transfer Case. (pjhlc1S, COURT STAFF) (Filed on 8/29/2020) (Entered: 08/29/2020)
44 OPPOSITION/RESPONSE (re 8 MOTION for Preliminary Injunction MOTION to Certify Class MOTION to Appoint Lead Plaintiff and Lead Counsel ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Declaration of Michael J. Desmond)(Yost, Landon) (Filed on 9/1/2020) (Entered: 09/01/2020)
45 NOTICE of Defendants' Failure to Oppose Motion for Class Certification and Proposed Order re 44 Opposition/Response to Motion, filed by Colin Scholl, Lisa Strawn (Attachments: # 1 Proposed Order)(Dermody, Kelly) (Filed on 9/2/2020) Modified on 9/3/2020 (jlmS, COURT STAFF). (Entered: 09/02/2020)
46 NOTICE of Opposition re 8 Motion to Certify Class, filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America (Yost, Landon) (Filed on 9/3/2020) Modified on 9/3/2020 (jlmS, COURT STAFF). (Entered: 09/03/2020)
47 REPLY (re 8 MOTION for Preliminary Injunction, MOTION to Certify Class, MOTION to Appoint Lead Plaintiff and Lead Counsel) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 9/8/2020) Modified on 9/9/2020 (jlmS, COURT STAFF). (Entered: 09/08/2020)
48 Supplemental Declaration of Yaman Salahi in Support of 8 MOTION for Preliminary Injunction, MOTION to Certify Class, MOTION to Appoint Lead Plaintiff and Lead Counsel filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit 45 - TIGTA Report April 2020)(Related document(s) 8 ) (Salahi, Yaman) (Filed on 9/8/2020) Modified on 9/9/2020 (jlmS, COURT STAFF). (Entered: 09/08/2020)
49 Order by Judge Phyllis J. Hamilton granting 40 Administrative Motion for Leave to File Brief for Amici Curiae. (pjhlc1S, COURT STAFF) (Filed on 9/9/2020) (Entered: 09/09/2020)
50 ORDER by Judge Phyllis J. Hamilton granting 8 Motion for Preliminary Injunction; granting 8 Motion to Certify Class;

09/27/2020 09/28/2020
09/28/2020 09/28/2020 09/29/2020 09/29/2020 09/30/2020

granting 8 Motion to Appoint Lead Plaintiff and Lead Counsel. (pjhlc1S, COURT STAFF) (Filed on 9/24/2020) (Entered: 09/24/2020)
51 Emergency MOTION for Notice to Class Members of Impending Deadline to File Claims and to Correct Class Definition filed by Colin Scholl, Lisa Strawn. Responses due by 10/13/2020. Replies due by 10/20/2020. (Attachments: # 1 Exhibit - Proposed Class Notice, # 2 Proposed Order)(Dermody, Kelly) (Filed on 9/27/2020) (Entered: 09/27/2020)
52 STIPULATION WITH PROPOSED ORDER to Shorten Time re: 51 Plaintiffs' Emergency Motion for Notice to Class Members of Impending Deadline to File Claims and to Correct Class Definition, filed by Colin Scholl, Lisa Strawn, Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Declaration of Kelly Dermody, # 2 Proposed Order)(Dermody, Kelly) (Filed on 9/28/2020) Modified on 9/29/2020 (jlmS, COURT STAFF). (Entered: 09/28/2020)
53 ORDER GRANTING STIPULATED REQUEST TO SHORTEN TIME RE: PLAINTIFFS' EMERGENCY MOTION FOR NOTICE TO CLASS MEMBERS OF IMPENDING DEADLINE TO FILE CLAIMS AND TO CORRECT CLASS DEFINITION by Judge Phyllis J. Hamilton granting 52 Stipulation. (kcS, COURT STAFF) (Filed on 9/28/2020) (Entered: 09/28/2020)
Reset Deadlines as to 51 Emergency MOTION for Notice to Class Members of Impending Deadline to File Claims and to Correct Class Definition . Opposition due by 9/30/2020. Reply due by 10/2/2020. (kcS, COURT STAFF) (Filed on 9/28/2020) (Entered: 09/28/2020)
54 MOTION for Summary Judgment filed by Colin Scholl, Lisa Strawn. Motion Hearing set for 11/4/2020 09:00 AM in Oakland, Courtroom 3, 3rd Floor before Judge Phyllis J. Hamilton. Responses due by 10/13/2020. Replies due by 10/20/2020. (Attachments: # 1 Proposed Order)(Dermody, Kelly) (Filed on 9/29/2020) (Entered: 09/29/2020)
55 Declaration of Yaman Salahi in Support of 54 MOTION for Summary Judgment filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit Ex. 1, # 2 Exhibit Ex. 2, # 3 Exhibit Ex. 3, # 4 Exhibit Ex. 4, # 5 Exhibit Ex. 5, # 6 Exhibit Ex. 6, # 7 Exhibit Ex. 7)(Related document(s) 54 ) (Salahi, Yaman) (Filed on 9/29/2020) (Entered: 09/29/2020)
56 OPPOSITION/RESPONSE (re 51 Emergency MOTION for Notice to Class Members of Impending Deadline to File Claims and to Correct

10/01/2020 10/01/2020 10/01/2020
10/02/2020 10/02/2020
10/02/2020 10/02/2020

Class Definition ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Declaration of Kenneth C. Corbin)(Yost, Landon) (Filed on 9/30/2020) (Entered: 09/30/2020)
57 MOTION to Shorten Time re Plaintiffs' Motion for Summary Judgment, filed by Colin Scholl, Lisa Strawn. (Attachments: # 1 Declaration of Kelly M. Dermody in Support, # 2 Proposed Order)(Dermody, Kelly) (Filed on 10/1/2020) Modified on 10/2/2020 (jlmS, COURT STAFF). (Entered: 10/01/2020)
58 Emergency MOTION to Stay of Preliminary Injunction Pending Appeal filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. Responses due by 10/15/2020. Replies due by 10/22/2020. (Attachments: # 1 Exhibit 1)(Yost, Landon) (Filed on 10/1/2020) Modified on 10/2/2020 (jlmS, COURT STAFF). (Entered: 10/01/2020)
59 NOTICE OF APPEAL to the 9th Circuit Court of Appeals filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. Appeal of Order on Motion for Preliminary Injunction, Order on Motion to Certify Class, Order on Motion to Appoint Lead Plaintiff and Lead Counsel 50 (Appeal fee FEE WAIVED.) (Yost, Landon) (Filed on 10/1/2020) (Entered: 10/01/2020)
60 REPLY (re 51 Emergency MOTION for Notice to Class Members of Impending Deadline to File Claims and to Correct Class Definition ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/2/2020) (Entered: 10/02/2020)
61 STIPULATION WITH PROPOSED ORDER TO SHORTEN TIME re 58 Emergency Motion to Stay of Preliminary Injunction Pending Appeal, filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America, Lisa Strawn, Colin Scholl. (Attachments: # 1 Declaration of Landon Yost, # 2 Proposed Order)(Yost, Landon) (Filed on 10/2/2020) Modified on 10/5/2020 (jlmS, COURT STAFF). (Entered: 10/02/2020)
62 ORDER by Judge Phyllis J. Hamilton granting 51 Motion for Notice to Class Members; granting 57 Motion to Shorten Time; granting 61 Stipulation. (pjhlc1S, COURT STAFF) (Filed on 10/2/2020) (Entered: 10/02/2020)
63 USCA Case Number 20-16915 Ninth Circuit Court of Appeals for 59 Notice of Appeal, filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S.

10/02/2020 10/05/2020 10/05/2020 10/05/2020
10/06/2020 10/06/2020
10/06/2020
10/07/2020 10/07/2020

Department of the Treasury. (cjlS, COURT STAFF) (Filed on 10/2/2020) (Entered: 10/05/2020)
64 ORDER of USCA: Scheduling Briefing as to 59 Notice of Appeal. USCA No. 20-16915. (jlmS, COURT STAFF) (Filed on 10/2/2020) (jlmS, COURT STAFF). (Entered: 10/05/2020)
Reset Deadlines as to 54 MOTION for Summary Judgment . Response due by 10/7/2020. Reply due by 10/9/2020. See docket no. 62 (amgS, COURT STAFF) (Filed on 10/5/2020) (Entered: 10/05/2020)
Reset Deadlines as to 58 Emergency MOTION to Stay of Preliminary Injunction Pending Appeal. Response due by 10/7/2020. Repply due by 10/9/2020. See Docket No. 62 (amgS, COURT STAFF) (Filed on 10/5/2020) (Entered: 10/05/2020)
65 RESPONSE re 62 Order on Motion for Miscellaneous Relief, Order on Motion to Shorten Time, Order on Stipulation by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Appendix A)(Yost, Landon) (Filed on 10/5/2020) (Entered: 10/05/2020)
66 OPPOSITION/RESPONSE (re 58 Emergency MOTION to Stay of Preliminary Injunction Pending Appeal ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/6/2020) (Entered: 10/06/2020)
67 RESPONSE re 65 Response ( Non Motion ), 62 Order on Motion for Miscellaneous Relief, Order on Motion to Shorten Time, Order on Stipulation - Plaintiffs' Response to Defendants' Proposed Notice Plan by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/6/2020) (Entered: 10/06/2020)
68 Declaration of Kelly M. Dermody in Support of 67 Response ( Non Motion ), filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit A - Plaintiffs' Proposed Notice, # 2 Exhibit B - Redline Showing Changes)(Related document(s) 67 ) (Dermody, Kelly) (Filed on 10/6/2020) (Entered: 10/06/2020)
69 ORDER by Judge Phyllis J. Hamilton Re 51 Emergency MOTION for Notice to Class Members. (pjhlc1S, COURT STAFF) (Filed on 10/7/2020) (Entered: 10/07/2020)
70 OPPOSITION/RESPONSE (re 54 MOTION for Summary Judgment ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Exhibit 1)(Yost, Landon) (Filed on 10/7/2020) (Entered: 10/07/2020)

10/08/2020

71 NOTICE OF APPEAL to the 9th Circuit Court of Appeals filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. Appeal of Order 69 (Appeal fee FEE WAIVED.) (Yost, Landon) (Filed on 10/8/2020) (Entered: 10/08/2020)

10/08/2020

91 USCA Case Number 20-16963 Ninth Circuit Court of Appeals for 71 Notice of Appeal, filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S. Department of the Treasury. (cjlS, COURT STAFF) (Filed on 10/8/2020) (Entered: 10/16/2020)

10/08/2020

92 ORDER of USCA: Setting Briefing Schedule as to 71 Notice of Appeal. USCA No. 20-16963. (jlmS, COURT STAFF) (Filed on 10/8/2020) (Entered: 10/16/2020)

10/08/2020 129 Letter to Judge Phyllis J. Hamilton re Stimulus Check, from Gloria B. Flores, dated 10/07/20. (jlmS, COURT STAFF) (Filed on 10/8/2020) (Entered: 10/29/2020)

10/09/2020

72 REPLY (re 58 Emergency MOTION to Stay of Preliminary Injunction Pending Appeal ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Yost, Landon) (Filed on 10/9/2020) (Entered: 10/09/2020)

10/09/2020

73 REPLY (re 54 MOTION for Summary Judgment ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/9/2020) (Entered: 10/09/2020)

10/09/2020

74 Declaration of Yaman Salahi in Support of 54 MOTION for Summary Judgment filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit 8 - CDCR Data re Colin Scholl, # 2 Exhibit 9 - Re-filed Signed Declarations, # 3 Exhibit 10 - E-mail to Defendants)(Related document(s) 54 ) (Salahi, Yaman) (Filed on 10/9/2020) (Entered: 10/09/2020)

10/09/2020

75 Declaration of Lisa Strawn in Support of 54 MOTION for Summary Judgment filed byColin Scholl, Lisa Strawn. (Related document(s) 54 ) (Dermody, Kelly) (Filed on 10/9/2020) (Entered: 10/09/2020)

10/09/2020

76 Amicus Curiae APPEARANCE entered by Amy Nicole Spivey on behalf of Center for Taxpayer Rights. (Attachments: # 1 Certificate/Proof of Service)(Spivey, Amy) (Filed on 10/9/2020) (Entered: 10/09/2020)

10/09/2020 10/09/2020
10/12/2020 10/12/2020 10/12/2020 10/13/2020 10/13/2020

77 MOTION for Leave to File Memorandum of Law of Amicus Curiae filed by Center for Taxpayer Rights. (Attachments: # 1 Memorandum of Law of Amicus Curiae, # 2 Proposed Order)(Spivey, Amy) (Filed on 10/9/2020) (Entered: 10/09/2020)
78 MOTION to Stay re 69 Order filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. Responses due by 10/23/2020. Replies due by 10/30/2020. (Attachments: # 1 Second Declaration of Kenneth C. Corbin, # 2 Declaration of Donald C. Drake)(Yost, Landon) (Filed on 10/9/2020) (Entered: 10/09/2020)
79 Declaration of Colin Scholl in Support of 54 MOTION for Summary Judgment filed byColin Scholl, Lisa Strawn. (Related document(s) 54 ) (Dermody, Kelly) (Filed on 10/12/2020) (Entered: 10/12/2020)
80 ORDER by Judge Phyllis J. Hamilton setting briefing schedule re 78 MOTION to Stay. (pjhlc1S, COURT STAFF) (Filed on 10/12/2020) (Entered: 10/12/2020)
Reset Deadlines as to 78 MOTION to Stay re 69 Order . Opposition due by 10/14/2020 at 9:00 a.m. Reply due by 10/14/2020 at 5:00 p.m. (kcS, COURT STAFF) (Filed on 10/12/2020) (Entered: 10/13/2020)
81 ORDER by Judge Phyllis J. Hamilton granting 77 Motion for Leave to File a Brief as Amicus Curiae in Support of Plaintiffs. (kcS, COURT STAFF) (Filed on 10/13/2020) (Entered: 10/13/2020)
82 CLERKS NOTICE SETTING ZOOM HEARING. Motion Hearing re 78 Motion to Stay set for 10/15/2020 at 01:00 PM before Judge Phyllis J. Hamilton. This proceeding will be held via a Zoom webinar.
Webinar Access: All counsel, members of the public, and media may access the webinar information at https://www.cand.uscourts.gov/pjh
General Order 58. Persons granted access to court proceedings held by telephon e or videoconference are reminded that photographing, recording, and rebroadcasting of court proceedings, including screenshots or other visual copying of a hearing, is absolutely prohibited.
Zoom Guidance and Setup: https://www.cand.uscourts.gov/zoom/.
(Related documents(s) 78 ) (This is a text-only entry generated by the court. There is no document associated with this entry.) (kcS, COURT STAFF ) (Filed on 10/13/2020) (Entered: 10/13/2020)

10/13/2020 10/13/2020
10/13/2020 10/13/2020 10/13/2020 10/14/2020 10/14/2020

83 OPPOSITION/RESPONSE (re 78 MOTION to Stay re 69 Order ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/13/2020) (Entered: 10/13/2020)
84 Declaration of Kelly M. Dermody in Support of 83 Opposition/Response to Motion filed byColin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit A - Email to Defendants re M&C, # 2 Exhibit B - Follow-up Email to Defendants re M&C, # 3 Exhibit C - Email to Defendants re Notice Proposal, # 4 Exhibit D - Defendants' Response to Proposal, # 5 Exhibit E - Follow-up to Defendants re Proposal, # 6 Exhibit F - Response from Defendants re Proposal, # 7 Exhibit G - Follow-up Request for Information to Defendants)(Related document(s) 83 ) (Dermody, Kelly) (Filed on 10/13/2020) (Entered: 10/13/2020)
89 MOTION for Leave to Intervene and Order Requiring IRS to Extend Time Limit to File for CARES Act Stimulus by State and Federal Inmates, filed by Robert Hastings. (jlmS, COURT STAFF) (Filed on 10/13/2020) (Entered: 10/16/2020)
93 ORDER of USCA: That appellant's emergency stay motion is denied without prejudice and remanded to the district court for the limited purposes of allowing it to modify the terms of the 10/07/20 order, as to 71 Notice of Appeal. USCA No. 20-16963 (jlmS, COURT STAFF) (Filed on 10/13/2020) Modified on 11/3/2020 (jlmS, COURT STAFF). (Entered: 10/16/2020)
95 Letter re Request for a Copy of Initial Complaint and Order of 09/24/20, from Tony Justich, dated 10/02/20. (jlmS, COURT STAFF) (Filed on 10/13/2020) Modified on 10/21/2020 (jlmS, COURT STAFF). (Entered: 10/19/2020)
85 ***DISREGARD, ENTERED IN ERROR. SEE DOCKET 87 FOR CORRECTED ENTRY*** ORDER by Judge Phyllis J. Hamilton granting in part and denying in part 54 Motion for Summary Judgment; denying 58 Motion to Stay. (pjhlc1S, COURT STAFF) (Filed on 10/14/2020) Modified on 10/14/2020 (kcS, COURT STAFF). (Entered: 10/14/2020)
86 REPLY (re 78 MOTION to Stay re 69 Order ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Third Declaration of Kenneth C. Corbin, # 2 Exhibit 1, # 3 Exhibit 2, # 4 Exhibit 3, # 5 Exhibit 4)(Yost, Landon) (Filed on 10/14/2020) (Entered: 10/14/2020)

10/14/2020

87 ORDER GRANTING IN PART AND DENYING IN PART 54 MOTION FOR SUMMARY JUDGMENT AND DENYING 58 MOTION FOR STAY. Signed by Judge Phyllis J. Hamilton on 10/14/2020. (kcS, COURT STAFF) (Filed on 10/14/2020) (Entered: 10/14/2020)

10/15/2020

88 Minute Entry for proceedings held before Judge Phyllis J. Hamilton: Motion Hearing held on 10/15/2020 re 78 MOTION to Stay re 69 Order filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S. Department of the Treasury. Court Reporter: Diane Skillman. (kcS, COURT STAFF) (Date Filed: 10/15/2020) (Entered: 10/15/2020)

10/15/2020

98 Letter from Albert Curtis Mills regarding becoming a class member. (Attachments: # 1 Envelope)(bwS, COURT STAFF) (Filed on 10/15/2020) Modified on 10/21/2020 (jlmS, COURT STAFF). (Entered: 10/20/2020)

10/16/2020

90 Order by Judge Phyllis J. Hamilton denying 78 Motion to Stay and granting Motion for Reconsideration.(pjhlc1S, COURT STAFF) (Filed on 10/16/2020) (Entered: 10/16/2020)

10/16/2020

Motion terminated as moot: 89 MOTION for Leave to File filed by Robert Hastings. See docket 90 Order on Motion. ***Copy of order mailed to filer.*** (kcS, COURT STAFF) (Filed on 10/16/2020) Modified on 10/16/2020 (kcS, COURT STAFF). (Entered: 10/16/2020)

10/16/2020

100 Letter re Request for Copy of Order by Judge Phyllis J. Hamilton, from Rennie Norelli. (jlmS, COURT STAFF) (Filed on 10/16/2020) (Entered: 10/21/2020)

10/16/2020 102 Letter re Request for Information and Request to Join Action, from Daniel W. Righer, dated 10/11/20. (jlmS, COURT STAFF) (Filed on 10/16/2020) (Entered: 10/21/2020)

10/16/2020

103 Letter re Request for Information and Request to Join Action, from Joseph D. Head, dated 10/11/20. (jlmS, COURT STAFF) (Filed on 10/16/2020) (Entered: 10/21/2020)

10/19/2020

94 NOTICE of Withdrawal of Counsel Christopher R. Pitoun by John Galvan, Patrick Taylor (Pitoun, Christopher) (Filed on 10/19/2020) Modified on 10/20/2020 (jlmS, COURT STAFF). (Entered: 10/19/2020)

10/19/2020 108 MOTION to Intervene and Become a Class-Member, filed by William H. Evans, Jr. Responses due by 11/2/2020. Replies due by 11/9/2020. (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/26/2020)

10/19/2020 109 MOTION for Leave to Qualify/Join as Class Member, filed by Kenneth Allan Fox. Responses due by 11/2/2020. Replies due by 11/9/2020. (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/26/2020)

10/19/2020 110 Letter re Non-Availability of Required IRS Form 1040 by Staff, from Zachary Spada, dated 10/19/20. (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/26/2020)

10/19/2020

112 Letter re Request for Copies of Docket Sheet and Amended Complaint, from Darnell W. Moon, dated 10/13/20. (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/26/2020)

10/19/2020 119 Second Letter from Albert Curtis Mills regarding becoming a class member, dated 10/12/20 (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/28/2020)

10/19/2020

120 Letter re Prisoners' Access to Direct Deposit, from David Marsh, dated 10/16/20. (jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/28/2020)

10/19/2020 121 Letter to Judge Phyllis J. Hamilton re The EIP 2020 1040 form, from Jorge Guadarrama, dated 10/14/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/28/2020)

10/19/2020 126 Letter re Request for Copy of Court's Decision from Robert Toblas. (jmlS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/29/2020)

10/19/2020 127 Letter re Request for Copy of Court's Decision from George Hamilton. (jmlS, COURT STAFF) (Filed on 10/19/2020) (Entered: 10/29/2020)

10/20/2020

Electronic filing error. Incorrect PDF attached. [err201] NOTE TO COUNSEL: Pursuant to Civil L.R. 11-5, Counsel may not withdraw from the action without an Order from the C ourt. Please re-file in its entirety with Proposed Order Re: 94 Notice of Withdrawal of Counsel, filed by Patrick Taylor, John Galvan (jlmS, COURT STAFF) (Filed on 10/20/2020) (Entered: 10/20/2020)

10/20/2020

96 NOTICE OF APPEAL to the 9th Circuit Court of Appeals filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. Appeal of Order 87 (Appeal fee FEE WAIVED.) (Yost, Landon) (Filed on 10/20/2020) (Entered: 10/20/2020)

10/20/2020

97 RESPONSE re 95 Letter Requesting Case Documents by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/20/2020) (Entered: 10/20/2020)

10/20/2020

99 USCA Case Number 20-17077 Ninth Circuit Court of Appeals for 96 Notice of Appeal, filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S. Department of the Treasury. (jmlS, COURT STAFF) (Filed on 10/20/2020) (Entered: 10/20/2020)

10/20/2020

101 Letter to Judge Phyllis J. Hamilton re Order of 09/24/20 from Isla Ballard, dated 10/15/20. (jlmS, COURT STAFF) (Filed on 10/20/2020) Modified on 10/23/2020 (jlmS, COURT STAFF). (Entered: 10/21/2020)

10/20/2020 113 Letter re Request for Copy of Docket Sheet, from Marlon Penton, dated 10/15/20. (jlmS, COURT STAFF) (Filed on 10/20/2020) (Entered: 10/26/2020)

10/21/2020

104 Letter Judge Phyllis J. Hamilton re Order of 09/24/20 from Albert Curtis Mills, dated 10/12/20. (jmlS, COURT STAFF) (Filed on 10/21/2020) Modified on 10/23/2020 (jlmS, COURT STAFF). (Entered: 10/22/2020)

10/21/2020

105 Letter re COVID-19 Stimulus Check, from J. Dillingham, dated 10/14/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/21/2020) (Entered: 10/22/2020)

10/21/2020 106 Letter re CARES ACT Injunction, from Jonathan J. Rodriguez, dated 10/13/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/21/2020) (Entered: 10/22/2020)

10/22/2020

117 Letter to Judge Phyllis J. Hamilton re Court's Order to IRS to Pay Stimulus Checks, from Ken Dawson, dated 10/19/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/22/2020) (Entered: 10/28/2020)

10/22/2020 118 Letter re Request for Copy of Court's Decision, from Mr. Edward Bowman, dated 10/20/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/22/2020) (Entered: 10/28/2020)

10/22/2020 124 Letter re Request for Copy of Opinion and Judgment and Magistrate Report and Recommendation, from Frankie Nealy, dated 10/13/20. (jlmS, COURT STAFF) (Filed on 10/22/2020) (Entered: 10/29/2020)

10/22/2020

132 MOTION to Intervene filed by Jordan Hidalgo, Alfred Salazar, Nathaniel Weibel, Jimmy Malone, Jeremy Pinson, Coty Waters, Wilfredo Garay-Sierra, Montavis Middleton, Randy Rorhbaugh, Sergio Arreola, Rene Ellis, Eric Ontiveros, Shaun Knox and Donte Harris. Responses due by 11/19/2020. Replies due by 12/3/2020. (jmlS, COURT STAFF) (Filed on 10/22/2020) (Entered: 10/30/2020)

10/23/2020

107 RESPONSE - Plaintiffs' Response to Class Member Inquiries at ECF 98, 100, 101, 102, 103, 105, and 106 Requesting Case Documents Or Legal Assistance by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/23/2020) (Entered: 10/23/2020)

10/23/2020 111 ORDER of USCA: That the Emergency Motion for Stay Pending Appeal is DENIED as to 96 Notice of Appeal. USCA No. 20-17077 (jlmS, COURT STAFF) (Filed on 10/23/2020) (Entered: 10/26/2020)

10/23/2020

125 MOTION for Order, filed by James Luedtke. Responses due by 11/6/2020. Replies due by 11/13/2020. (jlmS, COURT STAFF) (Filed on 10/23/2020) (Entered: 10/29/2020)

10/23/2020

128 ***DISREGARD, DUPLICATE OF DOCKET 125 *** MOTION for Order filed by James Luedtke. Responses due by 11/20/2020. Replies due by 12/4/2020. (jmlS, COURT STAFF) (Filed on 10/23/2020) Modified on 10/30/2020 (kcS, COURT STAFF). (Entered: 10/29/2020)

10/26/2020 114 ***ERRONEOUS ENTRY; PLEASE REFER TO DOCUMENT NO. 115 ***

RESPONSE Plaintiffs Response to Class Member Inquiries at ECF 98, 100, 101, 102, 103, 105, and 106 Requesting Case Documents Or Legal Assistance by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/26/2020) Modified on 10/27/2020 (jlmS, COURT STAFF). (Entered: 10/26/2020)

10/26/2020

115 RESPONSE Plaintiffs' Response to Class Member Inquiries at ECF 108, 109, 110, 112, and 113 Requesting Case Documents Or Legal Assistance by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/26/2020) (Entered: 10/26/2020)

10/26/2020

122 Letter re Request for Copy of Court's Decision, from Edward Bowman, dated 10/20/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 10/29/2020)

10/26/2020 123 Letter re Request for List of Law Firms, from James Freer, dated 10/22/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 10/29/2020)

10/26/2020 139 Letter re Request for Copy of Order from Jerry Jellis, dated 10 /21/20. (jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 11/05/2020)
10/26/2020 140 Letter to Judge Phyllis J. Hamilton re Notice to Class Members, from Raymond Strominger, dated 10/16/20. (jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 11/05/2020)

10/26/2020 141 Letter re Request for Court's Decision, from Edward Bowman, dated 10/20/20. (jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 11/05/2020)

10/26/2020 142 Letter to Judge Phyllis J. Hamilton re Report of Mass Tax Fraud Scheme, from Young Song, dated 10/21/20. (jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 11/05/2020)

10/26/2020

143 Letter re IRS Stimulus Under the CARES Act, from Matthew S. Phillips, dated 10/20/20. (jlmS, COURT STAFF) (Filed on 10/26/2020) (Entered: 11/05/2020)

10/28/2020 116 CLERKS NOTICE SETTING ZOOM HEARING. Status Conference set for 10/29/2020 at 02:00 PM before Judge Phyllis J. Hamilton. This proceeding will be held via a Zoom webinar.

Webinar Access: All counsel, members of the public, and media may access the webinar information at https://www.cand.uscourts.gov/pjh

General Order 58. Persons granted access to court proceedings held by telephone or videoconference a re reminded that photographing, recording, and rebroadcasting of court proceedings, including screenshots or other visual copying of a hearing, is absolutely prohibited.

Zoom Guidance and Setup: https://www.cand.uscourts.gov/zoom/.

(This is a text-only entry generated by the court. There is no document associated with this entry.) (kcS, COURT STAFF) (Filed on 10/28/2020) (Entered: 10/28/2020)

10/29/2020

130 Minute Entry for proceedings held before Judge Phyllis J. Hamilton: Status Conference held on 10/29/2020. Status Reports due by 11/6/2020. 12/7/2020, 1/6/2021. Court Reporter: Diane Skillman. (kcS, COURT STAFF) (Date Filed: 10/29/2020) (Entered: 10/29/2020)

10/29/2020

131 Letter re Request for Copy of Court's Decision from Michael Lott. (Attachments: # 1 Envelope)(jmlS, COURT STAFF) (Filed on 10/29/2020) (Entered: 10/30/2020)

10/29/2020

138 Letter re Request for 500 Tax Forms and Informational Packets from Darrick Lee, dated 10/26/20. (jlmS, COURT STAFF) (Filed on 10/29/2020) Modified on 11/10/2020 (jlmS, COURT STAFF). (Entered: 11/05/2020)

10/29/2020

144 Letter re Request for Copy of Court's Order of 10/07/20 from Thomas Florence, dated 10/20/20. (jlmS, COURT STAFF) (Filed on 10/29/2020) (Additional attachment(s) added on 11/5/2020: # 1 Envelope) (jlmS, COURT STAFF). (Entered: 11/05/2020)

10/29/2020 145 NOTICE of Misleading IRS Information and Conflict of Interest in Arkansas, filed by Daniel W. Risher (jlmS, COURT STAFF) (Filed on 10/29/2020) (Entered: 11/05/2020)

10/30/2020

133 STATUS REPORT by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7)(Yost, Landon) (Filed on 10/30/2020) (Entered: 10/30/2020)

10/30/2020

134 Response Plaintiffs' Response to Class Member Inquiries at ECF 117, 118, 120, 121, 123-129, 131, and 132 Requesting Case Documents or Legal Assistance byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 10/30/2020) (Entered: 10/30/2020)

10/30/2020

146 Letter re Stimulus Check, from Thomas F. Glass, Jr., dated 10/20/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 10/30/2020) (Entered: 11/05/2020)

10/30/2020 147 Letter to Judge Phyllis J. Hamilton re Request for Supplemental Order, from Robert C. Woodroofe, dated 10/26/20. (jlmS, COURT STAFF) (Filed on 10/30/2020) (Entered: 11/05/2020)

11/02/2020

148 Received Motion for Contempt of Court, to Enforce Court Orders, and for Further Relief, by Alvaro Luna Hernandez. (jlmS, COURT STAFF) (Filed on 11/2/2020) (Entered: 11/05/2020)

11/02/2020 149 Received Amicus Curiae by Thomas Stahly. (jlmS, COURT STAFF) (Filed on 11/2/2020) (Entered: 11/05/2020)

11/03/2020

135 MANDATE of USCA: That the motion for voluntary dismissal of this appeal is granted; This appeal is dismissed as to 71 Notice of Appeal, filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S. Department of the Treasury. USCA No. 20-16963 (jlmS, COURT STAFF) (Filed on 11/3/2020) (Entered: 11/03/2020)

11/03/2020

136 STIPULATION WITH PROPOSED ORDER TO MOVE DATES FOR THE GOVERNMENT'S STATUS REPORTS filed by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America, Lisa Strawn, Colin Scholl. (Attachments: # 1 Declaration of Landon Yost, # 2 Proposed

Order)(Yost, Landon) (Filed on 11/3/2020) Modified on 11/4/2020 (jlmS, COURT STAFF). (Entered: 11/03/2020)

11/05/2020

137 ORDER GRANTING STIPULATED REQUEST TO MOVE DATES FOR THE GOVERNMENT'S STATUS REPORTS by Judge Phyllis J. Hamilton granting 136 Stipulation. Status Reports due by 11/10/2020 and 12/8/2020. (kcS, COURT STAFF) (Filed on 11/5/2020) (Entered: 11/05/2020)

11/05/2020

150 Letter re Request for Copy of Final Order and Case Number for the Appeal, from Kevin Earl Scott, dated 11/01/20. (Attachments: # 1 Envelope)(jlmS, COURT STAFF) (Filed on 11/5/2020) (Entered: 11/05/2020)

11/06/2020

151 CLERK'S NOTICE RE CORRESPONDENCE. YOU ARE HEREBY NOTIFIED that as of 11/5/2020 the Court will no longer be entering correspondence on the docket. Correspondence received by the Clerk's Office after 11/5/2020 will continue to be forwarded to class counsel. (This is a text-only entry generated by the court. There is no document associated with this entry.) (kcS, COURT STAFF) (Filed on 11/6/2020) (Entered: 11/06/2020)

11/06/2020 152 STATUS REPORT by Colin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D)(Dermody, Kelly) (Filed on 11/6/2020) (Entered: 11/06/2020)

11/06/2020

153 Response to Class Member Inquiries at ECF 138, 139, 140, 141, 142, 143, 144, 145, 146, 148, 149, and 150 Requesting Case Documents or Legal Assistance byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 11/6/2020) (Entered: 11/06/2020)

11/06/2020

154 MOTION to Withdraw as Attorney Motion for Leave to Withdraw Appearance of Attorney Christopher Pitoun filed by John Galvan, Patrick Taylor. Motion Hearing set for 12/16/2020 09:00 AM in Oakland, Courtroom 3, 3rd Floor before Judge Phyllis J. Hamilton. Responses due by 11/20/2020. Replies due by 11/27/2020. (Attachments: # 1 Declaration of Christopher Pitoun, # 2 Proposed Order)(Pitoun, Christopher) (Filed on 11/6/2020) (Entered: 11/06/2020)

11/10/2020

155 STATUS REPORT regarding Compliance with the Permanent Injunction by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Fourth Declaration of Kenneth C. Corbin)(Yost, Landon) (Filed on 11/10/2020) (Entered: 11/10/2020)

11/13/2020 156 ***DISREGARD, ENTERED IN ERROR. SEE DOCKET 157 FOR CORRECTED ENTRY.***

ORDER RELATING CASE. Case C-20-5309-PJH is related to cases C-20-7531-SVK, C-20-7533-KAW, C-20-7779-RMI. Signed by Judge Phyllis J. Hamilton on 11/13/2020. (kcS, COURT STAFF) (Filed on 11/13/2020) Modified on 11/16/2020 (kcS, COURT STAFF). (Entered: 11/13/2020)

11/13/2020

157 ORDER RELATING CASE. Case C-20-5309-PJH is related to cases C-20-7531-SVK, C-20-7533-KAW, C-20-7779-RMI. Signed by Judge Phyllis J. Hamilton on 11/13/2020. ***Correction of docket 156 .*** (kcS, COURT STAFF) (Filed on 11/13/2020) (Entered: 11/16/2020)

11/20/2020

158 ORDER of USCA: That the unopposed motion to dismiss this appeal is granted. All pending motions are denied as moot as to 59 Notice of Appeal. USCA No. 20-16915. (jlmS, COURT STAFF) (Filed on 11/20/2020) (Entered: 11/20/2020)

11/23/2020

159 ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW APPEARANCE OF ATTORNEY CHRISTOPHER PITOUN PURSUANT TO L.R. CIV. 11-5 by Judge Phyllis J. Hamilton granting 154 Motion to Withdraw as Attorney. (kcS, COURT STAFF) (Filed on 11/23/2020) (Entered: 11/23/2020)

11/23/2020 160 RESPONSE re 157 Order, filed by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 11/23/2020) Modified on 11/24/2020 (jlmS, COURT STAFF). (Entered: 11/23/2020)

12/08/2020

161 SECOND STATUS REPORT re Compliance by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Declaration of David Alito)(Yost, Landon) (Filed on 12/8/2020) Modified on 12/9/2020 (jlmS, COURT STAFF). (Entered: 12/08/2020)

12/08/2020

162 STATUS REPORT REGARDING IMPLEMENTATION OF THE COURT'S ORDERS by Colin Scholl, Lisa Strawn. (Attachments: # 1 Exhibit A)(Dermody, Kelly) (Filed on 12/8/2020) Modified on 12/9/2020 (jlmS, COURT STAFF). (Entered: 12/08/2020)

12/11/2020

163 MOTION to Intervene filed by Jamal A. Morton, Araclis N. Ayala. Motion Hearing set for 1/20/2021 09:00 AM in Oakland, Courtroom 3, 3rd Floor before Judge Phyllis J. Hamilton. Responses due by 12/28/2020. Replies due by 1/4/2021. (Robbins, Edward) (Filed on 12/11/2020) Modified on 12/14/2020 (jlmS, COURT STAFF). (Entered: 12/11/2020)

12/11/2020 164 Declaration of Joseph A. DiRuzzo, III in Support of 163 MOTION to Intervene, filed by Araclis N. Ayala, Jamal A. Morton. (Related

document(s) 163 ) (Robbins, Edward) (Filed on 12/11/2020) Modified on 12/14/2020 (jlmS, COURT STAFF). (Entered: 12/11/2020)

12/11/2020

165 Proposed Order re 163 MOTION to Intervene, by Araclis N. Ayala, Jamal A. Morton.. (Robbins, Edward) (Filed on 12/11/2020) Modified on 12/14/2020 (jlmS, COURT STAFF). (Entered: 12/11/2020)

12/11/2020

166 MOTION for leave to appear in Pro Hac Vice for Joseph A. DiRuzzo, III, ( Filing fee $ 317, receipt number 0971-15308413.) filed by Araclis N. Ayala, Jamal A. Morton. (Robbins, Edward) (Filed on 12/11/2020) Modified on 12/14/2020 (jlmS, COURT STAFF). (Entered: 12/11/2020)

12/11/2020

167 Order/MANDATE of USCA as to 96 Notice of Appeal, filed by Steven Mnuchin, U.S. Internal Revenue Service, Charles Rettig, United States of America, U.S. Department of the Treasury. Filed order (Deputy Clerk: LBS) Appellants unopposed motion (Docket Entry No. 14 ) for voluntary dismissal is granted. This appeal is dismissed with prejudice. See Fed. R. App. P. 42(b). This order served on the district court shall act as and for the mandate of this court. THIS IS A TEXT ONLY ENTRY. USCA No. 20-17077 (cjlS, COURT STAFF) (Filed on 12/11/2020) Modified on 12/15/2020 (jlmS, COURT STAFF). (Entered: 12/14/2020)

12/15/2020 168 ORDER by Judge Phyllis J. Hamilton granting 166 Motion for Pro Hac Vice as to Joseph A. DiRuzzo, III. (kcS, COURT STAFF) (Filed on 12/15/2020) (Entered: 12/15/2020)

12/17/2020

169 REQUEST FOR A STATUS CONFERENCE REGARDING IMPLEMENTATION OF THE COURT'S ORDERS by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 12/17/2020) Modified on 12/18/2020 (jlmS, COURT STAFF). (Entered: 12/17/2020)

12/18/2020

170 ORDER by Judge Phyllis J. Hamilton Setting Status Conference. (pjhlc1S, COURT STAFF) (Filed on 12/18/2020) (Entered: 12/18/2020)

12/18/2020

171 ***DISREGARD, ENTERED IN ERROR. SEE DOCKET 172 FOR CORRECTED ENTRY.*** CLERKS NOTICE SETTING ZOOM HEARING. Status Conference set for 1/21/2020 at 10:00 AM in Oakland, - Videoconference Only before Judge Phyllis J. Hamilton. This proceeding will be held via a Zoom webinar.

Webinar Access: All counsel, members of the public, and media may access the webinar information at https://www.cand.uscourts.gov/pjh

General Order 58. Persons granted access to court proceedings held by telephone or videoconference are reminded that photographing, recording, and rebroadcasting of court proceedings, including screenshots or other visual copying of a hearing, is absolutely prohibited.

Zoom Guidance and Setup: https://www.cand.uscourts.gov/zoom/.

(This is a text-only entry generated by the court. There is no document associated with this entry.) (kcS, COURT STAFF) (Filed on 12/18/2020) Modified on 12/20/2020 (kcS, COURT STAFF). (Entered: 12/18/2020)

12/20/2020

172 AMENDED CLERKS NOTICE SETTING ZOOM HEARING. Status Conference set for 12/21/2020 at 10:00 AM in Oakland, Videoconference Only before Judge Phyllis J. Hamilton. This proceeding will be held via a Zoom webinar.

***Correction of Hearing Date***

Webinar Access: All counsel, members of the public, and media may access the webinar information at https://www.cand.uscourts.gov/pjh

General Order 58. Perso ns granted access to court proceedings held by telephone or videoconference are reminded that photographing, recording, and rebroadcasting of court proceedings, including screenshots or other visual copying of a hearing, is absolutely prohibited.

Zoom Guidance and Setup: https://www.cand.uscourts.gov/zoom/.

(This is a text-only entry generated by the court. There is no document associated with this entry. ) (kcS, COURT STAFF) (Filed on 12/20/2020) (Entered: 12/20/2020)

12/21/2020

173 Minute Entry for proceedings held before Judge Phyllis J. Hamilton: Status Conference held on 12/21/2020. Court Reporter: Pamela Batalo Hebel. (kcS, COURT STAFF) (Date Filed: 12/21/2020) (Entered: 12/21/2020)

12/23/2020 174 OPPOSITION/RESPONSE (re 163 MOTION to Intervene ) filed byColin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 12/23/2020) (Entered: 12/23/2020)

12/24/2020 175 OPPOSITION/RESPONSE (re 163 MOTION to Intervene ) filed bySteven Mnuchin, Charles Rettig, U.S. Department of the Treasury,

U.S. Internal Revenue Service, United States of America. (Yost, Landon) (Filed on 12/24/2020) (Entered: 12/24/2020)

01/04/2021 176 REPLY (re 163 MOTION to Intervene ) filed byJamal A. Morton. (DiRuzzo, Joseph) (Filed on 1/4/2021) (Entered: 01/04/2021)
01/04/2021 177 ***ERRONEOUS ENTRY; DOCUMENT SUBMITTED INTO CASE IN ERROR; PLEASE DISREGARD***

Received Motion to Compel from Theopolis Williams (Attachments: # 1 Affidavit, # 2 Certificate/Proof of Service, # 3 Envelope)(bwS, COURT STAFF) (Filed on 1/4/2021) Modified on 1/6/2021 (jlmS, COURT STAFF). (Entered: 01/05/2021)

01/06/2021

178 THIRD STATUS REPORT by Steven Mnuchin, Charles Rettig, U.S. Department of the Treasury, U.S. Internal Revenue Service, United States of America. (Attachments: # 1 Fifth Declaration of Kenneth C. Corbin)(Yost, Landon) (Filed on 1/6/2021) Modified on 1/7/2021 (jlmS, COURT STAFF). (Entered: 01/06/2021)

01/11/2021

179 ORDER RELATING CASE. Case C-20-5309-PJH is related to case C-20-9474-DMR. Signed by Judge Phyllis J. Hamilton on 1/11/2021. (kcS, COURT STAFF) (Filed on 1/11/2021) (Entered: 01/11/2021)

01/11/2021 180 Order by Judge Phyllis J. Hamilton denying 163 Motion to Intervene and denying Motion for Civil Contempt. (pjhlc1S, COURT STAFF) (Filed on 1/11/2021) (Entered: 01/11/2021)

01/12/2021

181 ORDER Requesting Proposed Form of Judgment. Signed by Judge Phyllis J. Hamilton on January 12, 2021. (pjhlc1S, COURT STAFF) (Filed on 1/12/2021) (Entered: 01/12/2021)

01/12/2021 182 MANDATE of USCA: Issued pursuant to FRAP Rule 41(a) as to 59 Notice of Appeal to the Ninth Circuit. USCA No. 20-16915 (jlmS, COURT STAFF) (Filed on 1/12/2021) (Entered: 01/13/2021)

01/19/2021 183 Proposed Final Judgment by Colin Scholl, Lisa Strawn. (Dermody, Kelly) (Filed on 1/19/2021) Modified on 1/20/2021 (jlmS, COURT STAFF). (Entered: 01/19/2021)

01/21/2021

184 FINAL JUDGMENT. Signed by Judge Phyllis J. Hamilton on 1/21/2021. ***Civil Case Terminated. (kcS, COURT STAFF) (Filed on 1/21/2021) (Entered: 01/21/2021)

PACER Service Center Transaction Receipt

03/12/2021 09:13:30

PACER Login:

CRClearinghouse:2563377:0

Client Code:

Description: Docket Report

Search Criteria:

Billable Pages:

19

Cost:

McEvoy
4:20-cv05309-PJH
1.90

 
 Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 1 of 18

1 Kelly M. Dermody (SBN 171716) Yaman Salahi (SBN 288752)
2 Jallé Dafa (SBN 290637) LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
3 275 Battery Street, 29th Floor San Francisco, CA 94111-3339
4 Telephone: 415.956.1000 Facsimile: 415.956.1008
5 kdermody@lchb.com ysalahi@lchb.com
6 jdafa@lchb.com

7 Eva Paterson (SBN 67081) Mona Tawatao (SBN 128779)
8 Christina Alvernaz (SBN 329768) EQUAL JUSTICE SOCIETY
9 1939 Harrison St., Suite 818 Oakland, CA 94612
10 Telephone: 415-288-8703 Facsimile: 510-338-3030
11 epaterson@equaljusticesociety.org mtawatao@equaljusticesociety.org
12 calvernaz@equaljusticesociety.org

13 [Additional counsel listed on signature page]

14 Attorneys for Plaintiffs and the Proposed Class __________________
15 UNITED STATES DISTRICT COURT
16 NORTHERN DISTRICT OF CALIFORNIA
17

18 COLIN SCHOLL and LISA STRAWN, on
19 behalf of themselves and all others similarly situated.
20 Plaintiffs,
21 v.
22 STEVEN MNUCHIN, in his official
23 capacity as the Secretary of the U.S. Department of Treasury; CHARLES
24 RETTIG, in his official capacity as U.S. Commissioner of Internal Revenue; U.S.
25 DEPARTMENT OF THE TREASURY; the U.S. INTERNAL REVENUE
26 SERVICE; and, the UNITED STATES OF AMERICA.
27 Defendants.
28

Case No. 3:20-cv-5309 CLASS ACTION COMPLAINT

2016261.1

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 2 of 18

1

1. This case is brought on behalf of persons who have been incarcerated in the United

2 States at any time from March 27, 2020 to the present (“incarcerated persons” or “incarcerated

3 people”) to challenge Defendants’ unauthorized and unlawful refusal to issue Economic Impact

4 Payments (“EIP”) to which these persons are entitled under the Coronavirus Aid, Relief, and

5 Economic Security (CARES) Act. See 26 U.S.C. § 6428. On behalf of themselves and all others

6 similarly situated, Plaintiffs seek a declaratory judgment that Defendants lack statutory authority

7 to withhold EIP benefits from them and other incarcerated persons based solely on their status as

8 such, and injunctive relief ordering Defendants (a) to automatically issue EIP benefits to those

9 who are entitled to an automatic payment based on the IRS’s records but for their incarcerated

10 status; (b) to re-consider any filed claim for an EIP that has been denied based solely on the

11 claimant’s incarcerated status and, moving forward, to prohibit Defendants from considering

12 incarcerated status in reviewing claims for EIP benefits under the CARES Act; and (c) to issue

13 EIP benefits to all incarcerated persons otherwise eligible for those benefits.

14

JURISDICTION AND VENUE

15

2. Jurisdiction is proper under 28 U.S.C. §§ 1331 (federal question) and 1346(a)

16 (Little Tucker Act).

17

3. Venue is proper in this district pursuant to 28 U.S.C. 1391(e)(1) because

18 Defendants are officers, employees, or agencies of the United States and Plaintiffs reside in this

19 district.

20

PARTIES

21

4. Plaintiff Colin Scholl currently resides at Salinas Valley State Prison, where he is

22 incarcerated. He is a citizen of the United States and is not claimed as a dependent on anyone

23 else’s tax return. Mr. Scholl filed a tax return for 2019 but did not receive an automatic EIP

24 benefit. Mr. Scholl subsequently filed a claim for an EIP through the IRS’s online non-filer

25 portal. He later received a letter from the IRS confirming receipt of the claim and stating that it

26 had been approved. However, Mr. Scholl never received a payment. When he called the IRS to

27 determine the status of his payment, he was informed that he was ineligible to receive an EIP

28 benefit because he is incarcerated. If he received an EIP benefit, Mr. Scholl would use it to

2016261.1

- 2 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 3 of 18

1 continue his rehabilitative programs inside to prepare for his anticipated release in November

2 2021.

3

5. Plaintiff Lisa Strawn was incarcerated at San Quentin State Prison in Marin

4 County, California from February 5, 2018 to July 14, 2020. Ms. Strawn currently resides in San

5 Francisco. She is a citizen of the United States and is not claimed as a dependent on anyone

6 else’s tax return. Ms. Strawn has not filed a return for 2018 or 2019 and does not have a filing

7 obligation for those years. Although Ms. Strawn was exposed to COVID-19 prior to her release

8 from San Quentin, Ms. Strawn has not received the COVID-related relief that Congress passed

9 because of her incarceration status at the time the CARES Act funds were released. Ms. Strawn

10 has not filed a claim for an EIP benefit because doing so would be futile pursuant to the IRS’s

11 stated position on the ineligibility of incarcerated persons, and because she fears that making the

12 request now could subject her to additional prosecution or other administrative penal remedies for

13 making a false claim. If she received an EIP, Ms. Strawn would use it to help cover the cost of

14 food, transportation, housing and other necessities in her transition from prison to the San

15 Francisco community.

16

6. Defendant Steven T. Mnuchin is the Secretary of the Treasury. Secretary Mnuchin

17 exercises full authority to administer and enforce the internal revenue laws and has the power to

18 create an agency to enforce these laws. He is responsible for distributing the EIPs under the

19 CARES Act and, in his official capacity, has unlawfully withheld EIP benefits from incarcerated

20 individuals.

21

7. Defendant Charles Rettig is the United States Commissioner of Internal Revenue

22 Service. In that capacity, he administers the application of the internal revenue laws. Defendant

23 Rettig reports to Defendant Mnuchin and, as part of his duties, oversees the issuance of EIP

24 benefits under the CARES Act. In his official capacity, he has unlawfully withheld EIP benefits

25 from incarcerated individuals.

26

8. Defendant U.S. Department of the Treasury is an agency of the United States

27 government. The Department of the Treasury is responsible for, among other things, the

28

2016261.1

- 3 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 4 of 18

1 disbursement of payments to the American public, including under the CARES Act. The U.S.

2 Department of the Treasury has unlawfully withheld EIP benefits from incarcerated individuals.

3

9. Defendant U.S. Internal Revenue Service is a bureau of the U.S. Department of the

4 Treasury organized to carry out the responsibilities of the Secretary of the Treasury under 26

5 U.S.C. § 7801. It was created based on the legislative grant of authority to the Secretary of the

6 Treasury to enforce the internal revenue laws. The IRS calculates and sends recovery payments

7 to eligible persons under the CARES Act.

8

10. Defendant United States of America is sued through its agencies, the U.S.

9 Department of the Treasury and U.S. Internal Revenue Service.

10 11 I. 12

BACKGROUND The CARES Act 11. Beginning in early 2020, the novel coronavirus pandemic created a severe

13 economic hardship on millions of Americans. To address this economic crisis, Congress passed

14 and President Trump signed into law the Coronavirus Aid, Relief, and Economic Security

15 (CARES) Act. Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”. See

16 Pub. L. 116-136, 134 Stat. 281 (Mar. 27, 2020).

17

12. Under the CARES Act, eligible individuals may receive a payment of up to $1,200

18 (or $2,400 in the case of eligible individuals filing a joint return), plus $500 for each qualifying

19 child. 26 U.S.C. § 6428(a). The amount of the credit may be adjusted based on an individual’s

20 adjusted gross income. Id. § 6428(c).

21

13. The CARES Act defines eligibility for an EIP broadly. The statute defines

22 “eligible individual” to include “any individual other than—(1) any non-resident alien individual,

23 (2) any individual with respect to whom a deduction under section 151 is allowable to another

24 taxpayer . . ., and (3) an estate or trust.” 26 U.S.C. § 6428(d). Congress did not impose any other

25 status-based limitations on the definition of “eligible individual” under 26 U.S.C. § 6428(d).

26

14. Pursuant to the CARES Act, Defendants are required to issue EIP benefits “as

27 rapidly as possible.” 26 U.S.C. § 6428(f)(3)(A). Pursuant to the IRS’s implementation of the

28 CARES Act, eligible persons who already filed a tax return for 2018 have automatically received

2016261.1

- 4 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 5 of 18

1 their EIP benefits without taking any additional action. See IRS, Economic Impact Payment

2 Information Center, Q4. Do I need to take action?, https://www.irs.gov/coronavirus/economic-

3 impact-payment-information-center. All eligible persons who were not entitled to an EIP based

4 on their 2018 return and have filed a 2019 return that entitles them to payment have or will

5 receive an EIP without taking additional action. Persons who were not required to file a tax

6 return in either year must file a claim through the IRS’s online portal for “non-filers.” See

7 https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here. Once filed, the IRS has no

8 discretion to refuse to disburse an EIP to anyone who satisfies the CARES Act’s statutory

9 requirements.

10

15. Although the CARES Act does not exclude incarcerated individuals from

11 eligibility for an EIP, the IRS announced on its website on May 6, 2020, more than five weeks

12 after the passage of the CARES Act, that incarcerated individuals were ineligible for the EIP.

13 The IRS’s website states:

14

Q15. Does someone who is incarcerated qualify for the Payment?

15

A15. No. A Payment made to someone who is incarcerated

should be returned to the IRS by following the instructions about

16

repayments. A person is incarcerated if he or she is described in

one or more of clauses (i) through (v) of Section 202(x)(1)(A) of

17

the Social Security Act (42 U.S.C. § 402(x)(1)(A)(i) through (v)).

For a Payment made with respect to a joint return where only one

18

spouse is incarcerated, you only need to return the portion of the

Payment made on account of the incarcerated spouse. This amount

19

will be $1,200 unless adjusted gross income exceeded $150,000.

20

16. In addition to requesting that incarcerated individuals return their EIP benefits

21 without providing any explanation of the legal basis for doing so, the IRS has affirmatively taken

22 action to withhold or retrieve the EIP from incarcerated individuals as described in a Government

23 Accountability Office (GAO) report dated June 25, 2020 entitled “COVID 19 Opportunities to

24 Improve Federal Response and Recovery Efforts.” On page 222 of that report, the GAO states:

25 “According to IRS officials, IRS also worked with federal and state prison officials to assist in the

26 return of payments made to incarcerated individuals.” GAO-20-625,

27 https://www.gao.gov/reports/GAO-20-625/.

28

2016261.1

- 5 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 6 of 18

1

17. On June 24, 2020, the Associated Press reported that although “checks of up to

2 $1,200 were automatically sent in most cases to people who filed income tax returns for 2018 or

3 2019, including some who are incarcerated,” “[a] couple of weeks later, the IRS directed state

4 correction departments to intercept payments to prisoners and return them.” Rebecca Boone,

5 Inmates Got Virus Relief Checks, and IRS Wants Them Back, Associated Press, June 24, 2020,

6 https://apnews.com/0810bb67199c9cef34d4d39ada645a92. Pursuant to the IRS’s directive,

7 “[t]he Kansas Department of Correction alone intercepted more than $200,000 in checks by early

8 June. Idaho and Montana combined had seized over $90,000.” Id. Other states, including

9 Washington, Vermont, Mississippi, Pennsylvania, Arizona, California, Oregon, and Utah have

10 intercepted stimulus payments to incarcerated persons at the IRS’s behest.

11

18. The IRS has no legal basis for withholding, retracting, or asking others to intercept

12 stimulus payments to incarcerated persons. When asked, IRS spokesman Eric Smith stated “I

13 can’t give you the legal basis. All I can tell you is this is the language the Treasury and ourselves

14 have been using.” Id.

15

19. Indeed, a Department of Treasury Inspector General report analyzed only the

16 initial set of 81.4 million EIP payments to eligible Americans and legal permanent residents

17 issued on April 10, 2020. When the Inspector General inquired about the inclusion of

18 incarcerated persons in this disbursement, “IRS management noted that payments to these

19 populations of individuals were allowed because the CARES Act does not prohibit them from

20 receiving a payment. However, the IRS subsequently changed its position, noting that individuals

21 who are prisoners . . . are not entitled to an EIP.” See Treasury Inspector General for Tax

22 Administration, Interim Results of the 2020 Filing Season: Effect of COVID-19 Shutdown on Tax

23 Processing and Customer Service Operations and Assessment of Efforts to Implement Legislative

24 Provisions, Ref No. 2020-46-041, at 4-5 (June 30, 2020),

25 https://www.treasury.gov/tigta/auditreports/2020reports/202046041fr.pdf. Thereafter, the IRS

26 took action to exclude incarcerated persons from subsequent EIP disbursements, and notified the

27 Inspector General on May 13, 2020, that “programming was implemented to discontinue

28 calculating and sending EIPs to prisoners . . . .” Id. at 5. Specifically, “the IRS provided the

2016261.1

- 6 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 7 of 18

1 [U.S. Department of the Treasury’s Bureau of the Fiscal Service (BFS)] with a file that contained

2 the Taxpayer Identification Numbers of prisoners . . . and requested that the BFS remove these

3 individuals from payment files. This approach was applied to the May 1, 2020 and May 8, 2020,

4 payment files.” Id. According to the report, as of May 21, 2020, the IRS had issued 84,861

5 payments to incarcerated people totaling $100 million, and had begun taking steps to advise those

6 individuals (or their spouses) of the steps they should take to return those payments, as reflected

7 in the online FAQ discussed above. Id. at 6. (It is unclear whether these 84,861 payments

8 include only incarcerated people who received payments pursuant to the April 10, 2020

9 disbursement before the IRS reversed course, or whether these payments also include checks

10 inadvertently sent in subsequent disbursements.)

11

20. The IRS’s refusal to distribute the EIP to incarcerated individuals, and its attempt

12 to intercept, retrieve, and request the return of EIPs to incarcerated individuals who already

13 received them, violate the CARES Act, which does not condition eligibility for EIP benefits on

14 incarcerated status. If Congress had intended to exclude incarcerated individuals, it would have

15 done so expressly.

16

21. Although Plaintiffs and other incarcerated individuals fall squarely within the

17 group of individuals determined by Congress to be eligible for EIPs, Defendants (a) have acted

18 ultra vires to classify them as ineligible based on their incarcerated status alone; (b) have

19 withheld automatic payments to Plaintiffs and similarly situated individuals; and, (c) have taken

20 action to intercept and retrieve (and to demand the return of) checks that were previously mailed

21 to such persons. Upon information and belief, Defendants have also refused to distribute EIP

22 benefits to incarcerated persons who filed a claim through the IRS’s online portal on the basis of

23 their incarcerated status alone.

24

22. Because of the IRS’s policy, Plaintiffs and other similarly situated persons who did

25 not receive automatic EIP benefits are unsure whether they are authorized to utilize the non-filer

26 portal to obtain an EIP, and whether doing so will result in an accusation of filing a fraudulent

27 claim with the potential to result in enhanced sentences, revocation of parole, new criminal

28 charges, or other adverse consequences for currently or formerly incarcerated people. Further,

2016261.1

- 7 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 8 of 18

1 given Defendants’ clear position regarding the ineligibility of incarcerated persons for an EIP

2 benefit, filing a claim through the non-filer portal would be futile.

3 II. 4

The Incarcerated Population 23. Congress did not exclude incarcerated individuals from the EIP program, and the

5 IRS has not cited any legal authority to do so. Even assuming the IRS had the power to establish

6 its own non-statutory eligibility criteria under the CARES Act, it lacks a reasonable basis to

7 exclude incarcerated people from the EIP benefit program.

8

24. Incarcerated individuals, as defined by 42 U.S.C. § 402(x)(1)(A)(i)-(v), have tax

9 obligations and can obtain tax benefits just like other individuals subject to the taxes imposed by

10 Title 26 of the United States Code. Incarcerated individuals do not lose their status (or

11 responsibilities) as taxpayers by virtue of their incarceration.

12

25. Incarcerated individuals, like other members of society, have personal, financial,

13 and other relationships that put them in need of economic assistance just like other members of

14 society. For example, hundreds of thousands of incarcerated individuals will be released from

15 custody in the near future, returning to the same bleak economy that necessitated passage of the

16 CARES Act; EIP funds will assist them with re-entry and help mitigate recidivism. According to

17 a Bureau of Justice Statistics report, the total number of incarcerated people released from either

18 state or federal jurisdiction in 2016 was 626,019, and 622,377 in 2017. See U.S. Department of

19 Justice Bureau of Justice Statistics, Prisoners in 2017, Table 7 (Apr. 2019),

20 https://www.bjs.gov/content/pub/pdf/p17.pdf. Similarly, according to the Federal Bureau of

21 Prisons, 17,281 people have already been released from federal custody in 2020 to date, 45,075

22 were released in 2019, and 37,820 were released in 2018 (federal institutions house

23 approximately 10% of the United States’ incarcerated population). See

24 https://www.bop.gov/about/statistics/statistics_inmate_releases.jsp.

25

26. Indeed, the average incarcerated person spends a relatively short period of time

26 behind bars, even if sentences are longer. According to one study, approximately 28% of

27 convicted criminal defendants in state courts who are given jail sentences receive sentences

28 averaging 7 months, and the average amount of time served for all persons subject to state

2016261.1

- 8 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 9 of 18

1 incarceration is 27 months. See Matthew R. Durose & Patrick A. Langan, Ph.D., State Court

2 Sentencing of Convicted Felons, 2002 Statistical Tables, Bureau of Justice Statistics, Tables 1.2,

3 1.3, and 1.5 (May 2005) https://www.bjs.gov/content/pub/pdf/scscf02.pdf. In the federal prison

4 system, the median prison sentence nationally is 18 months and 12 months in the Ninth Circuit.

5 See United States Sentencing Commission, Statistical Information Packet Fiscal Year 2019 Ninth

6 Circuit, Table 7, https://www.ussc.gov/sites/default/files/pdf/research-and-publications/federal-

7 sentencing-statistics/state-district-circuit/2019/9c19.pdf. EIP benefits will assist those who will

8 soon re-enter society with overcoming the various economic, housing, and social obstacles to

9 achieving stability and avoiding recidivism.

10

27. Additionally, most incarcerated individuals come from low income families where

11 assistance is needed most, and thus can use the EIP funds to support family members who are not

12 in confinement. A 2015 study by the Prison Policy Initiative found that incarcerated people have

13 a median annual income of $19,185 prior to their incarceration, compared to a median income of

14 $41,250 for non-incarcerated people. See Bernadette Rabuy & Daniel Kopf, Prisons of Poverty:

15 Uncovering the Pre-incarceration Incomes of the Imprisoned (July 9, 2015), Prison Policy

16 Initiative, https://www.prisonpolicy.org/reports/income.html.

17

28. Further, the racial disproportionality among those who are incarcerated mirrors the

18 racial disproportionality among those most harmed by COVID-19. Black people are incarcerated

19 at six times the rate and Latinx people are imprisoned at three times the rate of white people in the

20 United States. Racial Disparities in Incarceration and Coronavirus, FWD.us, (Apr. 14, 2020),

21 https://www.fwd.us/news/coronavirus-disparity/. Native Americans are incarcerated “at over

22 four times the rate for whites.” Race & Justice News: Native Americans in the Justice System,

23 The Sentencing Project, (Mar. 28, 2016), https://www.sentencingproject.org/news/race-justice-

24 news-native-americans-in-the-justice-system/. Not only is COVID-19 disproportionately fatal for

25 Black, Indigenous, and Latinx people, but Black, Indigenous, and Latinx communities are

26 disproportionately bearing the economic devastation wrought by the pandemic. “Workers of

27 color are overrepresented in the lowest-paid agricultural, domestic, and service vocations,” which

28 limits their ability to maintain economic stability in the midst of a pandemic and a recession.

2016261.1

- 9 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 10 of 18

1 Connor Maxwell & Danyelle Solomon, The Economic Fallout of the Coronavirus for People of

2 Color, CENTER FOR AMERICAN PROGRESS (Apr. 14, 2020),

3 https://www.americanprogress.org/issues/race/news/2020/04/14/483125/economic-fallout-

4 coronavirus-people-color/. And with an average net worth roughly one-tenth the size of white

5 households, Black and Latinx households have less liquidity and fewer assets to weather lay-offs

6 and furloughs. Id.

7

29. The government’s failure to provide incarcerated individuals the EIP benefits not

8 only affects those in confinement but also their families. According to the U.S. Department of

9 Justice, 50 percent to 75 percent of incarcerated individuals report having a minor child. Eric

10 Martin, Hidden Consequences: The Impact of Incarceration on Dependent Children, National

11 Institute of Justice, (May 2017), https://www.ncjrs.gov/pdffiles1/nij/250349.pdf. More than 2.7

12 million children have an incarcerated parent. Daniel M. Leeds, Juliana Pearson, Simone Robers,

13 and Leslie Scott, Incarcerated adults with dependent children (February 2020),

14 https://static1.squarespace.com/static/51bb74b8e4b0139570ddf020/t/5e41932d16c3c736370cd9c

15 2/1581355822385/2020_CNA_Incarcerated_Adults_Dependent_Children.pdf. Nearly half of

16 Americans have an immediate family member who is formerly or currently incarcerated. Equal

17 Justice Initiative, Half of Americans Have Family Members who Have Been Incarcerated

18 (December 11, 2018), https://eji.org/news/half-of-americans-have-family-members-who-have-

19 been-incarcerated/. Incarceration is concentrated in economically disadvantaged communities:

20 the proportion of people who have an incarcerated family member increases as income declines.

21 See id. Further, as with the disproportionate harm inflicted by COVID-19, Black adults are 50%

22 more likely to have had a family member incarcerated than white people; Latinx people are nearly

23 twice as likely to have a family member in jail or prison for more than one year; and Native

24 Americans have high rates of family incarceration. Racial Disparities in Incarceration and

25 Coronavirus, FWD (Apr. 14, 2020), https://www.fwd.us/news/coronavirus-disparity/. These

26 families need the EIP funds the most. Nearly two in three families are unable to meet basic needs

27 such as food, housing, and medical care while their family member is incarcerated. See id.

28

2016261.1

- 10 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 11 of 18

1

30. The EIP also provides important funds to incarcerated persons when other sources

2 may have evaporated due to the economic pressures related to COVID-19. Prisons and jails have

3 shifted more and more costs onto incarcerated people—costs for things like hygiene supplies,

4 medical copayments, and communication with loved ones—and this is unlikely to diminish given

5 the predicted government budget shortfalls caused by a COVID-affected tax base. Indeed,

6 incarcerated people are also consumers in a sizeable retail market. A 2016 report concluded that

7 approximately one-third of state prison systems privatize their commissaries in some respect, with

8 sales by commissaries operated by private corporations accounting for more than half of the $1.6

9 billion in annual prison commissary revenues. See Stephen Raher, Paging Anti-trust Lawyers:

10 Prison Commissary Giants Prepare to Merge, Prison Policy Initiative (July 5, 2016),

11 https://www.prisonpolicy.org/blog/2016/07/05/commissary-merger/. The spending of people

12 under confinement is largely focused on life essentials like food and hygiene, and often is reliant

13 on support from people on the outside as prison incomes are too low to cover average costs. A

14 recent study, for example, determined that annual commissary sales to incarcerated people in

15 Illinois, Massachusetts, and Washington were $48.4 million, $11.7 million, and $8.6 million,

16 respectively, with an overall average of $947 in annual spending per confined person, “well over

17 the typical amount incarcerated people earn working regular prison jobs in these states ($180 to

18 $660 per year).” Stephen Raher, The Company Store: A Deeper Look at Prison Commissaries,

19 Prison Policy Initiative (May 2018), https://www.prisonpolicy.org/reports/commissary.html. The

20 study found that the vast majority of these sales related to food products: in Illinois, $34.3 million

21 out of $48.4 million of prison population spending went to food products, while in Massachusetts

22 the ratio was $9.1 million out of $11.7 million, and in Washington it was $6.6 million out of $8.6

23 million. Id. The next highest amounts were for hygiene products, clothing, household goods and

24 supplies, and mail and stationary. Id. EIP benefits will thus go in large part towards providing

25 for these life essentials which are often sold to incarcerated people by private corporations.

26

31. Because incarcerated people have little ability to earn incomes, they tend to rely on

27 money transfers from friends and family to pay for basic necessities. This is very expensive for

28 family members, because any deposits they make may be automatically garnished by the prison

2016261.1

- 11 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 12 of 18

1 system to pay for an incarcerated person’s outstanding financial obligations, such as restitution,

2 child support, and so on. For example, in California, the California Department of Corrections

3 and Rehabilitation automatically garnishes 50% of any deposit into an incarcerated person’s

4 account to satisfy that person’s outstanding restitution obligations. See Cal. Dep’t of Corrections

5 & Rehabilitation, How does a Victim Collect on the Restitution Order from an Inmate or a

6 Parolee?, https://www.cdcr.ca.gov/victim-services/restitution-collections/, (last accessed July 27,

7 2020). That means that if an incarcerated person who owes restitution needs $100 to cover their

8 prison spending, the family on the outside must deposit $200 to cover those expenses. As family

9 members on the outside (who are often low-income to begin with) lose their jobs in the

10 pandemic-induced economic collapse, families will be increasingly less able to send money to

11 loved ones inside. The EIP checks help protect the health and well-being of those in

12 confinement, facilitating their rehabilitation and suitability for return to society upon release,

13 while reducing the burden on and providing relief to their loved ones at home.

14

32. Finally, many incarcerated people have outstanding financial obligations and

15 debts, including child support, mortgages, and restitution obligations. The EIP checks will go

16 toward satisfying those obligations, as well.

17

CLASS ALLEGATIONS

18

33. Plaintiffs bring this action on behalf of themselves and all others similarly situated

19 (the “Class”), pursuant to Federal Rule of Civil Procedure 23. The Class is defined as follows:

20

All United States citizens and legal permanent residents who:

21

(a) are or were incarcerated (i.e., confined in a jail, prison, or

other penal institution or correctional facility pursuant to their

22

conviction of a criminal offense) in the United States, or have been

held to have violated a condition of parole or probation imposed

23

under federal or state law, at any time from March 27, 2020 to the

present; 24

(b) filed a tax return in 2018 or 2019, or were exempt from a

25

filing obligation because they earned an income below $12,000 (or

$24,400 if filing jointly) in the respective tax year; 26

(c) were not claimed as a dependent on another person’s tax

27

return; and,

28

(d) filed their taxes with a valid Social Security Number, and,

2016261.1

- 12 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 13 of 18

1

if they claimed qualifying children or filed jointly with another

person, those individuals also held a valid Social Security Number.

2

Excluded from the Class are estates and trusts; Defendants; the

3

officers, directors, or employees of any Defendant; and, any judicial

officer presiding over this action and the members of his/her

4

immediate family and judicial staff.

5

34. The exact size of the class is unknown. However, according to the U.S.

6 Department of Justice’s Bureau of Justice Statistics, in 2018, there were approximately 1,465,158

7 people imprisoned in state or federal facilities, over 90% of whom were U.S. citizens. Thus, the

8 class size is over 1.5 million individuals. Joinder of that many people is impractical.

9

35. There are multiple questions of law and fact common to the class including but not

10 limited to:

11

a. Whether Defendants have unlawfully withheld or unreasonably delayed

12 delivery of EIP benefits to Plaintiffs and the Class;

13

b. Whether Defendants’ policy treating incarcerated people as ineligible for

14 EIP benefits based on their incarcerated status is contrary to law, in excess of statutory authority,

15 and/or arbitrary and capricious;

16

c. Whether Defendants violated the CARES Act by withholding EIP checks

17 from Plaintiffs and the Class based on their status as incarcerated people alone;

18

d. Whether Defendants are liable to Plaintiffs and the Class for the sum of the

19 EIP benefits to which they are entitled under the CARES Act; and,

20

e. The remedies to which Plaintiffs and the Class are entitled.

21

36. These and other questions of law and fact are common to the Class, and

22 predominate over any questions affecting only individual members of the Class.

23

37. Plaintiffs’ claims are typical of the Class, as all Class Members challenge

24 Defendants’ authority to withhold EIP checks from them on the sole basis of their status as

25 incarcerated people. The answer to this question is the same for all members of the Class. There

26 are no defenses of a unique nature that may be asserted against Plaintiffs individually, as

27 distinguished from other members of the Class, and the relief sought is common to the Class.

28

2016261.1

- 13 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 14 of 18

1

38. Plaintiffs will fairly and adequately protect the interests of the members of the

2 Class. Plaintiffs’ interests are aligned with, and not antagonistic to, those of the other members of

3 the Class, and Plaintiffs have retained counsel competent and experienced in the prosecution of

4 class action litigation to represent themselves and the Class.

5

39. Certification of the class for injunctive relief is appropriate under Rule 23(b)(1)

6 because the prosecution of separate actions by individual class members would create a risk of

7 inconsistent or varying adjudications that would establish incompatible standards of conduct for

8 Defendants or would, as a practical matter, be dispositive of the interests of other class members

9 not parties to the individual adjudications or otherwise substantially impair or impede their ability

10 to protect their interests. Certification for injunctive and declaratory relief is also appropriate

11 under Rule 23(b)(2) because Defendants have acted on grounds that apply generally to the whole

12 class. Additionally, certification of a class for monetary relief under Rule 23(b)(3) is appropriate

13 because the common questions of fact and law predominate over questions specific to individual

14 class members. The common questions of law will determine Defendants’ liability to every

15 member of the class. Class-wide treatment of these common issues in a single forum is a superior

16 means of determining Defendants’ liability to each Class Member than potentially thousands of

17 other lawsuits. As a result, class-wide adjudication of Defendants liability is the most efficient

18 means of adjudication.

19

CLAIMS FOR RELIEF

20

COUNT ONE

21

Defendants’ Unlawful Withholding of EIP Benefits to Plaintiffs and the Class

22

(5 U.S.C. § 706(1))

23

40. The foregoing allegations are re-alleged and incorporated herein.

24

41. Defendants have a duty to issue EIP benefits to all eligible individuals in a timely

25 manner. 26 U.S.C. § 6428. Plaintiffs and the Class have a clear right to such benefits, and

26 Defendants have no lawful basis to refuse them. The issuance of such benefits constitutes

27 discrete agency action.

28

2016261.1

- 14 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 15 of 18

1

42. Defendants have unlawfully withheld and/or unreasonably delayed the issuance of

2 EIP benefits to Plaintiffs and the Class despite their clear entitlement to those benefits.

3

43. Based on the foregoing allegations, Plaintiffs seek an order compelling Defendants

4 to issue EIP benefits to them and the Class.

5

COUNT TWO 6 Defendants’ Policy Denying EIP Benefits to Plaintiffs and the Class Is Contrary to Law, In

Excess of Statutory Authority, and Arbitrary and Capricious

7

(Administrative Procedure Act (“APA”), 5 U.S.C. §§ 702, 706(2))

8

44. The foregoing allegations are re-alleged and incorporated herein.

9

45. Defendants’ policy of withholding EIP benefits from incarcerated persons based

10 solely on their status as incarcerated people exceeds Defendants’ statutory authority under the

11 CARES Act, 26 U.S.C. § 6428, is contrary to law, and is arbitrary and capricious, or otherwise

12 unlawful within the meaning of the APA, 5 U.S.C. § 706(2).

13

46. Plaintiffs and members of the Class have been aggrieved by Defendants’ policy of

14 withholding EIP benefits from incarcerated persons based solely on their incarcerated status

15 because they have been denied a statutory benefit to which they are otherwise entitled.

16

47. Defendants’ refusal to issue EIP benefits to incarcerated persons reflects

17 Defendants’ final, considered position, as evidenced by, among other things, the announcement of

18 that position on the IRS’s website, directives issued to state officials to intercept and return such

19 checks from correctional facilities, and advice to the public that incarcerated persons and their

20 spouses “should” return any checks that may have been mailed inadvertently to them. This policy

21 thus constitutes final administrative action under 5 U.S.C. § 704.

22

48. Based on the foregoing violations, Plaintiffs and the Class request a declaratory

23 judgment that Defendants lack statutory authority to withhold EIP checks from them based solely

24 on their status as incarcerated persons.

25

49. Based on the foregoing violations, Plaintiffs and the Class also request injunctive

26 relief ordering Defendants to (a) automatically issue EIP checks to Class Members who, having

27 filed a tax return in 2018 or 2019, are entitled to an automatic payment based on the IRS’s records

28 but for their incarcerated status; (b) review and approve any claim submitted through the IRS’s

2016261.1

- 15 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 16 of 18

1 “non-filer portal” which has been denied based solely on the claimant’s status as an incarcerated

2 person and, moving forward, prohibiting Defendants from considering incarcerated status in

3 reviewing claims made under the CARES Act; (c) withdraw the statements which express that

4 incarcerated individuals are not entitled to CARES Act funds, thus removing the deterrent to

5 eligible potential claimants who reasonably fear penalty for seeking benefits to which Defendants

6 have wrongfully claimed they are not entitled; and (d) issue EIP benefits to all Class Members.

7

COUNT THREE

8

CARES Act and Little Tucker Act

(26 U.S.C. § 6824 and 28 U.S.C. § 1346(a)(2)) 9

50. The foregoing allegations are re-alleged and incorporated herein.

10

51. Plaintiffs and the Class are eligible for EIP benefits pursuant to the CARES Act,

11

26 U.S.C. § 6428, because they are (1) U.S. citizens or ”resident aliens”; (2) filed tax returns in

12

2018 or 2019, or were exempt from doing so; (3) are not claimed as dependents of another tax

13

filer; (4) are not estates or trusts; and (5) if they filed tax returns jointly with another person or

14

claimed qualifying children, those persons had a valid Social Security Number.

15

52. Defendants have refused to issue EIP benefits to Plaintiffs and the Class based

16

solely on their status as incarcerated persons, despite lacking any statutory authority to do so.

17

53. Plaintiffs and each Class Member therefore have a civil claim against the United

18

States, not exceeding $10,000 in amount, founded upon the CARES Act. 28 U.S.C. § 1346(a)(2).

19

54. Based on the foregoing allegations, Plaintiffs and the Class seek monetary relief in

20

an amount equal to each Class Member’s benefit under the CARES Act.

21

RELIEF REQUESTED 22
Wherefore, Plaintiffs respectfully requests that this Court: 23
A. Enter an order certifying this case for class treatment pursuant to Federal Rule of 24
Civil Procedure 23, appointing Plaintiffs as Representatives of the Class, and 25
appointing the undersigned attorneys as Class Counsel; 26
B. Enter declaratory judgment that Defendants lack statutory authority to withhold 27
economic impact payments from Plaintiffs and the Class based solely on their 28

2016261.1

- 16 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 17 of 18

1

status as incarcerated persons;

2

C. Enjoin Defendants from refusing to distribute economic impact payments under

3

the CARES Act for the benefit of Plaintiffs and the Class based solely on their

4

status as incarcerated persons;

5

D. Order Defendants to determine (or re-determine) the eligibility of Plaintiffs and

6

each Class Member for a CARES Act benefit without taking into consideration

7

their status as incarcerated persons, and to issue benefits to all those who meet the

8

statutory eligibility criteria;

9

E. Order Defendants to review and approve any claims filed through the “non-filer

10

portal” and denied based solely on the claimant’s status as an incarcerated person,

11

and to issue benefits to those that otherwise meet the eligibility criteria for an

12

economic impact payment;

13

F. Award damages to Plaintiffs and the Class in the amount of each individual’s

14

entitlement under the CARES Act;

15

C. Award Plaintiffs their reasonable fees, costs, and expenses, including attorneys’

16 fees, pursuant to 28 U.S.C. 2412; and

17

D. Award such additional relief as the interests of justice may require.

18

19

20

21

22

23

24

25

26

27

28

2016261.1

- 17 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

Case 3:20-cv-05309 Document 1 Filed 08/01/20 Page 18 of 18

1 Dated: August 1, 2020 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
2016261.1

Respectfully submitted,
By: /s/ Kelly M. Dermody Kelly M. Dermody
Kelly M. Dermody (SBN 171716) Yaman Salahi (SBN 288752) Jallé Dafa (SBN 290637) LIEFF CABRASER HEIMANN
& BERNSTEIN, LLP 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 Telephone: 415.956.1000 Facsimile: 415.956.1008 kdermody@lchb.com ysalahi@lchb.com jdafa@lchb.com
Eva Paterson (SBN 67081) Mona Tawatao (SBN 128779) Christina Alvernaz (SBN 329768) EQUAL JUSTICE SOCIETY 1939 Harrison St., Suite 818 Oakland, CA 94612 Telephone: 415-288-8703 Facsimile: 510-338-3030 epaterson@equaljusticesociety.org mtawatao@equaljusticesociety.org calvernaz@equaljusticesociety.org
Lisa Holder (SBN 212628) EQUAL JUSTICE SOCIETY P.O. Box 65694 Los Angeles, CA 90065 Telephone: 323-683-6610 lisaholder@yahoo.com
Attorneys for Plaintiffs and the Proposed Class

- 18 -

CLASS ACTION COMPLAINT CASE NO. 3:20-CV-5309

 
 Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 1 of 45

United States District Court Northern District of California

1

2

3

4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6

7

COLIN SCHOLL, et al.,

8

Plaintiffs,

Case No. 20-cv-05309-PJH

9

v.

10

STEVEN MNUCHIN, et al.,

11

Defendants.

12

ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION AND MOTION FOR CLASS CERTIFICATION
Re: Dkt. No. 8

13

14

Before the court is plaintiffs Colin Scholl and Lisa Strawn’s (“plaintiffs”) motion for

15 preliminary injunction, motion for class certification, and motion to appoint class counsel.

16 The matter is fully briefed and suitable for resolution without oral argument. Having read

17 the papers filed by the parties and carefully considered their arguments and the relevant

18 legal authority, and good cause appearing, the court rules as follows.

19

BACKGROUND

20

On August 1, 2020, plaintiffs filed a complaint (“Compl.”) in this putative class

21 action asserting three causes of action: (1) violation of the Administrative Procedure Act

22 (“APA”), 5 U.S.C. § 706(1); (2) violation of the APA, 5 U.S.C. §§ 702, 706(2); and

23 (3) violation of the CARES Act, 26 U.S.C. § 6824, and the Little Tucker Act, 28 U.S.C.

24 § 1346(a)(2). Dkt. 1. On August 4, 2020, plaintiffs filed the present motion for

25 preliminary injunction, motion for class certification, and motion to appoint co-lead

26 counsel. Dkt. 8.

27

Defendants Steven Mnuchin, Charles Rettig, the U.S. Department of the Treasury,

28 the U.S. Internal Revenue Service (“IRS”), and the United States of America (collectively

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 2 of 45

United States District Court Northern District of California

1 “defendants”) are generally responsible for administering economic impact payments

2 (“EIP”) to eligible individuals pursuant to the Coronavirus Aid, Relief, and Economic

3 Security Act (the “CARES Act” or the “Act”), Pub. L. No. 116-136, 134 Stat. 281 (2020),

4 which was signed into law on March 27, 2020. Compl. ¶¶ 1, 6–11. Plaintiffs are

5 incarcerated and formerly incarcerated persons who did not receive payments (id. ¶¶ 4–

6 5) and seek to certify a nationwide class of all similarly situated persons who are or were

7 incarcerated, otherwise met the criteria to receive an EIP under the CARES Act, but did

8 not receive an EIP, (id. ¶ 33).

9

In the spring of 2020, the COVID-19 pandemic swept across the United States and

10 the globe causing significant disruptions to the living and working arrangements of

11 virtually everyone. As part of the response to the pandemic, many institutions and

12 businesses closed their doors in an effort to slow or stop the spread of the disease. The

13 secondary and tertiary effects of this response was both widespread and largely unknown

14 at the time. One fairly obvious impact of the pandemic was the loss of employment for

15 millions of Americans; in April 2020 alone more than 20 million Americans lost their jobs.

16 Amador v. Mnuchin, — F. Supp. 3d —, 2020 WL 4547950, at *2 (D. Md. Aug. 5, 2020).

17 In response, Congress passed the CARES Act that included many provisions totaling

18 $2.2 trillion in relief. See id. As part of that relief package, Congress provided for a

19 mechanism to distribute stimulus payments, the EIP, directly to Americans.

20

The CARES Act, codified in part at section 6428 of the Internal Revenue Code, 26

21 U.S.C. § 6428, establishes the following mechanism for the IRS1 to issue EIP to eligible

22 individuals. First, subsection (a) establishes a tax credit for eligible individuals in the

23 amount of $1,200 ($2,400 if filing a joint return), plus $500 multiplied by the number of

24 qualifying children. 26 U.S.C. § 6428(a). This amount is credited against an eligible

25 individual’s federal income tax for the year 2020. Id. The amount of the credit is reduced

26

27 1 The CARES Act directs the Secretary of the Treasury to issue the advance payments

28

described in section 6428, but the IRS is the agency tasked with determining who should receive the payments.

2

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 3 of 45

United States District Court Northern District of California

1 “by 5 percent of so much of the taxpayer’s adjusted gross income” that exceeds

2 $150,000 for joint filers, $112,500 for a head of household, and $75,000 in all other

3 cases.2 § 6428(c). For purposes of the CARES Act, an eligible individual is defined as

4 “any individual” other than (1) any nonresident alien individual, (2) any individual who is

5 allowed as a dependent deduction on another taxpayer’s return, and (3) an estate or

6 trust. § 6428(d).

7

The EIP is an advance refund of the subsection (a) tax credit and subsection (f)

8 describes the mechanism for implementing the advance refund. Paragraph (1) of

9 subsection (f) provides that “each individual who was an eligible individual for such

10 individual’s first taxable year beginning in 2019 shall be treated as having made a

11 payment against the tax imposed by chapter 1 for such taxable year in an amount equal

12 to the advance refund amount for such taxable year.” § 6428(f)(1). Paragraph (5) of

13 subsection (f) permits the IRS to substitute taxable year 2018 for taxable year 2019 in

14 paragraph (f)(1) and further allows the IRS to use information for calendar year 2019

15 provided in Form SSA-1099 or Form RRB-1099 (relating to Social Security benefit

16 statements) if an individual has not filed a tax return for either 2018 or 2019. § 6428(f)(5).

17 Thus, if an eligible individual filed a tax return in 2018 or 2019 or filed one of the

18 enumerated Social Security forms, then the Act directs the IRS to treat those taxpayers

19 as eligible for an advance refund of the tax credit.

20

Paragraph (3) of subsection (f) requires the IRS to “refund or credit any

21 overpayment attributable to this section as rapidly as possible.” § 6428(f)(3).

22 Additionally, Congress provided that “[n]o refund or credit shall be made or allowed under

23 this subsection after December 31, 2020.” Id. The CARES Act also has a reconciliation

24 provision between the advance refund and the tax credit such that if a taxpayer receives

25 an advance refund of the tax credit then the amount of the credit is reduced by the

26

27 2 In other words, the amount of income in excess of the statutory adjusted gross income

28

is multiplied by 5 percent and that number is deducted (but not below zero) from the amount of the tax credit that would otherwise be paid to the taxpayer.

3

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 4 of 45

United States District Court Northern District of California

1 aggregate amount of the refund. § 6428(e). Finally, the CARES Act delegates to the

2 Secretary of the Treasury the authority to “prescribe such regulations or other guidance

3 as may be necessary to carry out the purposes of this section, including any such

4 measures as are deemed appropriate to avoid allowing multiple credits or rebates to a

5 taxpayer.” § 6428(h).

6

Three days after the President signed the CARES Act, the IRS issued a news

7 release explaining that the agency would calculate and automatically issue an EIP to

8 eligible individuals. Mtn. at 2; Declaration of Yaman Salahi (“Salahi Decl.”), Dkt. 11, Ex. 1

9 at 1.3 The IRS also established an online portal for individuals who are not typically

10 required to file federal income tax returns (e.g., an individual’s income is less than

11 $12,200), which allows those non-filers to enter their information to see if they qualify for

12 an EIP. Mtn. at 3; Salahi Decl., Ex. 2. Individuals who use the non-filer online portal

13 have until October 15, 2020 to register in order to receive the EIP by the December 31,

14 2020 deadline imposed by the CARES Act. Mtn. at 3; Salahi Decl., Ex. 3.

15

On May 6, 2020, the IRS published responses to “Frequently Asked Questions”

16 (“FAQ”) on the IRS.gov website. Mtn. at 3; Salahi Decl., Ex. 4. Question 154 asked

17

18

3 Plaintiffs separately filed a request for judicial notice, seeking notice of exhibits 1 through 6, 16, and 39 through 43 of the Salahi Declaration. Dkt. 12. Defendants do not

19

object to the request. The court finds that exhibits 1 through 6, 16, 43, and 44 are judicially noticeable as they are publicly available government publications or news

20

releases and GRANTS the request as to those exhibits. See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 999 (9th Cir. 2010) (taking judicial notice of information made

21

publicly available by government entities). Exhibits 39 through 42 are statements by members of Congress contained in the Congressional Record and related to passage of

22

the CARES Act. Federal Rule of Evidence 201 permits judicial notice of an “adjudicative fact only, not a legislative fact.” As the Advisory Committee Notes stated, “[a]djudicative

23

facts are simply the facts of the particular case. Legislative facts, on the other hand, are those which have relevance to legal reasoning and the lawmaking process, whether in

24

the formulation of a legal principle or ruling by a judge or court or in the enactment of a legislative body.” “[J]udicial notice is generally not the appropriate means to establish the

25

legal principles governing the case.” Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 960 (9th Cir. 2010) (alteration in original) (quoting Toth v.

26

Grand Trunk R.R., 306 F.3d 335, 349 (6th Cir. 2002)). Because exhibits 39 through 42 relate to statements made during the lawmaking process, they are legislative facts. The

27

court is free to consult them, but as a technical matter, DENIES the request for judicial notice as to those exhibits.

28

4 The numbers of the FAQs have changed several times since they were first published. Defendants state that the FAQ at issue was originally FAQ number 12 and they now refer

4

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 5 of 45

United States District Court Northern District of California

1 “Does someone who is incarcerated qualify for the Payment [i.e., an EIP]?” The IRS

2 responded:

3

A15. No. A Payment made to someone who is incarcerated

should be returned to the IRS by following the instructions

4

about repayments. A person is incarcerated if he or she is

described in one or more of clauses (i) through (v) of Section

5

202(x)(1)(A) of the Social Security Act (42 U.S.C. § 402

(x)(1)(A)(i) through (v)). For a Payment made with respect to a

6

joint return where only one spouse is incarcerated, you only

need to return the portion of the Payment made on account of

7

the incarcerated spouse. This amount will be $1,200 unless

adjusted gross income exceeded $150,000.

8

9 Salahi Decl., Ex. 4. On June 18, 2020, the IRS updated its internal procedures manual to

10 reflect the policy stated in response to the FAQ. Id., Ex. 5.

11

On June 30, 2020, the Treasury Inspector General for Tax Administration

12 (“TIGTA”) issued a report on the interim results of the 2020 filing season, including results

13 of an audit on the IRS’s issuance of the EIPs. Id., Ex. 6. The TIGTA noted that on April

14 10, 2020 the IRS issued 81.4 million payments pursuant to the CARES Act and some of

15 those payments were sent to incarcerated persons and deceased individuals. Id. at 4.5

16 At the time, the TIGTA notified IRS management of its concern regarding the issuance of

17 such payments to incarcerated persons. The report then stated “IRS management noted

18 that payments to these populations of individuals were allowed because the CARES Act

19 does not prohibit them from receiving a payment. However, the IRS subsequently

20 changed its position, noting that individuals who are prisoners or deceased are not

21 entitled to an EIP.” Id. at 5. The IRS provided taxpayer identification numbers of

22 incarcerated persons to the Bureau of Fiscal Service6 (“BFS”) and requested that BFS

23 remove those individuals from subsequent payments issued on May 1, 2020 and May 8,

24

25

to the question as FAQ number 14. Opp. at 6 n.7. Because plaintiffs submit evidence that the FAQ was number 15, the court uses FAQ 15 to refer to the question at issue.

26

While the numbers have changed, the court understands the substance of the FAQ to remain unchanged.

27

5 Pin citations to the TIGTA’s report refer to the report’s original page numbers and not the electronically stamped ECF number on the exhibit.

28

6 The BFS is an agency of the Department of the Treasury that issues payments, including the EIPs, on behalf of the IRS. Salahi Decl., Ex. 6 at 3 n.5.

5

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 6 of 45

United States District Court Northern District of California

1 2020. Id. There were no payments to incarcerated persons in these later tranches.

2

TIGTA calculated that the April 10th disbursement sent 84,861 payments totaling

3 approximately $100 million to incarcerated persons. Id. at 6, fig. 3. In response to these

4 already issued payments, the IRS issued guidance, as reflected in the FAQ, that

5 individuals who received a direct deposit payment in error should repay the advance

6 refund by submitting a personal check or money order to the IRS. Id. at 6. Individuals

7 who received a paper EIP check were instructed to return the voided check to the IRS.

8 Id. Further, plaintiffs cite news stories reporting that the IRS took proactive steps to

9 intercept and retrieve the April 10th payments such as directing state corrections

10 departments to intercept payments made to incarcerated persons and return them to the

11 IRS. Mtn. at 5; Salahi Decl., Ex. 7.

12

Plaintiffs seek to certify a class of all individuals who were incarcerated across the

13 United States since March 27, 2020 and meet the eligibility requirements described in the

14 CARES Act. They also seek a preliminary injunction to enjoin defendants from enforcing

15 their policy of excluding both plaintiffs and proposed class members from receiving EIPs

16 based on their incarcerated status alone. Finally, plaintiffs also move the court to appoint

17 them as class representatives and appointing their counsel as class counsel.

18

DISCUSSION

19 A. Legal Standard

20

1. Preliminary Injunction

21

Federal Rule of Civil Procedure 65 provides federal courts with the framework to

22 issue preliminary injunctions. Fed. R. Civ. P. 65(a). Generally, the purpose of a

23 preliminary injunction is to preserve the status quo and the rights of the parties until a

24 final judgment on the merits can be rendered. See U.S. Philips Corp. v. KBC Bank N.V.,

25 590 F.3d 1091, 1094 (9th Cir. 2010) (collecting cases).

26

An injunction is a matter of equitable discretion and is “an extraordinary remedy

27 that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.”

28 Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008); see also Munaf v. Geren,

6

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 7 of 45

United States District Court Northern District of California

1 553 U.S. 674, 689–90 (2008). A preliminary injunction “should not be granted unless the

2 movant, by a clear showing, carries the burden of persuasion.” Mazurek v. Armstrong,

3 520 U.S. 968, 972 (1997) (per curiam). “A plaintiff seeking a preliminary injunction must

4 establish that [1] he is likely to succeed on the merits, that [2] he is likely to suffer

5 irreparable harm in the absence of preliminary relief, that [3] the balance of equities tips

6 in his favor, and that [4] an injunction is in the public interest.” Winter, 555 U.S. at 20.

7

Alternatively, the Ninth Circuit employs a “sliding scale” approach whereby

8 “‘serious questions going to the merits’ and a hardship balance that tips sharply toward

9 the plaintiff can support issuance of an injunction, assuming the other two elements of the

10 Winter test are also met.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th

11 Cir. 2011). “That is, ‘serious questions going to the merits’ and a balance of hardships

12 that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so

13 long as the plaintiff also shows that there is a likelihood of irreparable injury and that the

14 injunction is in the public interest.” Id. at 1135; see also Ramos v. Wolf, — F.3d —, 2020

15 WL 5509753, at *10 (9th Cir. Sept. 14, 2020) (describing sliding scale alternative

16 approach).

17

If a plaintiff satisfies its burden to demonstrate that a preliminary injunction should

18 issue, “injunctive relief should be no more burdensome to the defendant than necessary

19 to provide complete relief to the plaintiffs.” Califano v. Yamasaki, 442 U.S. 682, 702

20 (1979).

21

2. Class Certification

22

To maintain a class action, a proposed class must satisfy Rule 23(a)’s numerosity,

23 commonality, typicality, and adequacy of representation requirements. Fed. R. Civ.

24 P. 23(a). If all four prerequisites of Rule 23(a) are satisfied, the court then determines

25 whether to certify the class under one of the three subsections of Rule 23(b), which

26 requires plaintiffs to show either: (1) a risk of substantial prejudice from separate actions,

27 (2) that declaratory or injunctive relief benefitting the class as a whole would be

28 appropriate, or (3) that common questions of law or fact common to the class

7

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 8 of 45

United States District Court Northern District of California

1 predominate and that a class action is superior to other methods available for

2 adjudicating the controversy at issue. Fed. R. Civ. P. 23(b)(1)–(3).

3

The party seeking class certification bears the burden of proof in demonstrating

4 that it has satisfied all four Rule 23(a) requirements and that their action falls within one

5 of the three types of actions permitted under Rule 23(b). Zinser v. Accufix Research

6 Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001). “Before certifying a class, the trial court

7 must conduct a rigorous analysis to determine whether the party seeking certification has

8 met the prerequisites of Rule 23.” Mazza v. Am. Honda Motor Co. Inc., 666 F.3d 581,

9 588 (9th Cir. 2012). To the extent there are “any factual disputes necessary to

10 determine” a Rule 23 criterion, a district court is required to resolve them. Ellis v. Costco

11 Wholesale, 657 F.3d 970, 983 (9th Cir. 2011) (“[T]he district court was required to resolve

12 any factual disputes necessary to determine whether there was a common pattern and

13 practice that could affect the class as a whole. If there is no evidence that the entire

14 class was subject to the same allegedly discriminatory practice, there is no question

15 common to the class.”).

16 B. Motion for Preliminary Injunction

17

1. Subject Matter Jurisdiction

18

Defendants argue that plaintiffs are not likely to succeed on the merits based on a

19 trio of issues that implicates the court’s subject matter jurisdiction: standing, ripeness,

20 and sovereign immunity. Because these issues directly implicate the court’s subject

21 matter jurisdiction to hear the case, the court addresses these threshold questions at the

22 outset.

23

a. Standing

24

Federal courts may adjudicate only actual “Cases” and “Controversies,” U.S.

25 Const. art. III, § 2, and may not render advisory opinions as to what the law ought to be

26 or affecting a dispute that has not yet arisen. Aetna Life Ins. Co. of Hartford, Conn. v.

27 Haworth, 300 U.S. 227, 240 (1937). Article III’s “standing” requirements limit the court’s

28 subject matter jurisdiction. See Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir.

8

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 9 of 45

United States District Court Northern District of California

1 2004). The burden of establishing standing rests on the party asserting the claim.

2 Renne v. Geary, 501 U.S. 312, 316 (1991). “At this very preliminary stage,” plaintiffs

3 “may rely on the allegations in their Complaint and whatever other evidence they

4 submitted in support of their [preliminary injunction] motion to meet their burden.”

5 Washington v. Trump, 847 F.3d 1151, 1159 (9th Cir. 2017) (per curiam) (citing Lujan v.

6 Defs. of Wildlife, 504 U.S. 555, 560–61 (1992)).

7

The “irreducible constitutional minimum of standing contains three elements.”

8 Lujan, 504 U.S. at 560. “In order to establish Article III standing, a plaintiff must have (1)

9 suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the

10 defendant, and (3) that is likely to be redressed by a favorable judicial decision.”

11 California v. Trump, 963 F.3d 926, 935 (9th Cir. 2020) (citing Lujan, 504 U.S. at 560–61).

12 “To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a

13 legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not

14 conjectural or hypothetical.’” Spokeo Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016)

15 (quoting Lujan, 504 U.S. at 560).

16

Defendants argue that the CARES Act does not give plaintiffs a legally protected

17 interest in an advance refund. Opp. at 12. Rather, the CARES Act created a refundable

18 credit against an eligible individuals’ 2020 tax return. Id. According to defendants, a

19 taxpayer could only sustain an injury when he or she attempts to claim the CARES Act

20 tax credit on his or her 2020 tax returns and then only if the IRS denies the claim to the

21 tax credit. Id. In response, plaintiffs assert that the failure to pay the advance refund for

22 which they are eligible is a concrete financial injury that has already occurred. Reply at 8.

23

As an initial observation, the deprivation of a monetary benefit is precisely the sort

24 of economic injury that normally satisfies the injury in fact requirement. Sierra Club v.

25 Morton, 405 U.S. 727, 733 (1972) (“[P]alpable economic injuries have long been

26 recognized as sufficient to lay the basis for standing . . . .”). Plaintiffs cite Van v. LLR,

27 Inc., for the proposition that “[t]he inability to have and use money to which a party is

28 entitled is a concrete injury.” 962 F.3d 1160, 1161 (9th Cir. 2020) (per curiam) (quoting

9

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 10 of 45

United States District Court Northern District of California

1 MSPA Claims 1, LLC v. Tenet Fla., Inc., 918 F.3d 1312, 1318 (11th Cir. 2019)). This

2 case is persuasive and illustrates how wrongfully withheld money constitutes an injury in

3 fact for standing purposes. The rationale behind Van’s holding is applicable here:

4 “[e]very day that a sum of money is wrongfully withheld, its rightful owner loses the time

5 value of the money.” Id. (quoting Habitat Educ. Ctr. v. U.S. Forest Serv., 607 F.3d 453,

6 457 (7th Cir. 2010)). Thus, plaintiffs have established a concrete injury.

7

Defendants’ argument does not contest the concreteness or particularization of the

8 injury, but rather challenges its imminence, i.e., whether the injury is too speculative or

9 conjectural because plaintiffs would not be harmed until the IRS denies their request for a

10 CARES Act tax credit in the future. They cite Coon v. Wood, 160 F. Supp. 3d 246, 251

11 (D.D.C. 2016), for the proposition that the mere possibility of future tax liability is

12 insufficient to establish standing to sue in federal court. There, the plaintiff alleged that

13 defendants negligently misrepresented the potential tax consequences on a sale of real

14 property but the IRS had not imposed any tax liability and available evidence showed that

15 the plaintiff was unlikely to incur any future tax liability. Id. The court found injury in fact

16 lacking because the mere possibility of future tax liability was insufficient to confer

17 standing. Id.

18

This case is distinguishable from Coon for the simple fact that plaintiffs allege that

19 the IRS has already decided to deny EIPs to incarcerated persons. Moreover, the IRS

20 readily acknowledges that it has done so. See Declaration of Michael Desmond

21 (“Desmond Decl.”), Dkt. 44-1, ¶ 7. Plaintiffs’ injury is actual and imminent in the sense

22 that defendants already denied payments to them and the injury is not merely a

23 speculative fear about future harm that may or may not happen. Lujan, 504 U.S. at 560.

24

Defendants’ argument that plaintiffs do not have a legally protected interest and

25 cannot sustain a cognizable injury until the IRS denies the tax credit is predicated on the

26 assumption that their interpretation of the CARES Act is, in fact, correct. In other words,

27 defendants’ argument goes to the merits of plaintiffs’ claims. If plaintiffs were to prevail

28 on their claims, then the CARES Act’s advance refund would presumably be owed to

10

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 11 of 45

United States District Court Northern District of California

1 them now, not in 2021 when they file their 2020 tax returns. For that reason, plaintiffs

2 easily satisfy the imminence aspect of the injury in fact requirement.

3

The court also notes that other district courts that have considered similar

4 arguments by the federal government have determined that both standing and ripeness

5 were met by plaintiffs challenging the Act. While those cases involve constitutional

6 challenges to the CARES Act, the federal government argued that the plaintiffs did not

7 have standing and their claims were not ripe because the plaintiffs were first required to

8 file a refund claim with the IRS after first being denied a tax credit on their 2020 tax

9 returns. See Doe v. Trump, 2020 WL 5076999, at *3 (C.D. Cal. July 8, 2020) (“Accepting

10 for this analysis the substantive merits of Plaintiff’s constitutional claims, she has suffered

11 a ‘concrete and particularized’ injury because she has been treated differently from other

12 citizens similarly situated and has been denied a government benefit (in the form of an

13 immediate advance payment) that she would otherwise be eligible for.”); see also

14 Amador, 2020 WL 4547950, at *11 (finding standing where plaintiffs claimed that “they

15 have not received the impact payment to which they and their children are otherwise

16 entitled”).

17

The remaining elements of Article III standing, which defendants do not contest,

18 are easily met. The failure to disburse the EIPs to incarcerated persons is directly

19 traceable to a decision made by the IRS and an order for injunctive relief would directly

20 remedy plaintiffs’ injury. In sum, the court finds that plaintiffs meet the Article III standing

21 requirement.

22

b. Ripeness

23

“Ripeness is an Article III doctrine designed to ensure that courts adjudicate live

24 cases or controversies and do not ‘issue advisory opinions [or] declare rights in

25 hypothetical cases.’ A proper ripeness inquiry contains a constitutional and a prudential

26 component.” Bishop Paiute Tribe v. Inyo Cty., 863 F.3d 1144, 1153 (9th Cir. 2017)

27 (citations omitted).

28

“For a case to be ripe, it must present issues that are definite and concrete, not

11

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 12 of 45

United States District Court Northern District of California

1 hypothetical or abstract. Constitutional ripeness is often treated under the rubric of

2 standing because ripeness coincides squarely with standing’s injury in fact prong.” Id.

3 (internal quotation marks and citations omitted); Thomas v. Anchorage Equal Rights

4 Comm’n, 220 F.3d 1134, 1138–39 (9th Cir. 2000) (en banc) (“Sorting out where standing

5 ends and ripeness begins is not an easy task. . . . [I]n ‘measuring whether the litigant has

6 asserted an injury that is real and concrete rather than speculative and hypothetical, the

7 ripeness inquiry merges almost completely with standing.’”). Allegations that a “threat” to

8 a “concrete interest is actual and imminent” are sufficient to allege “an injury in fact that

9 meets the requirements of constitutional ripeness.” Bishop Paiute Tribe, 863 F.3d at

10 1154. Therefore, if plaintiffs satisfy the Article III standing requirements under Lujan v.

11 Defenders of Wildlife, addressed above, the action here is ripe. In this case, the analysis

12 for both requirements is the same. See, e.g., Thomas, 220 F.3d at 1139 (“Whether the

13 question is viewed as one of standing or ripeness, the Constitution mandates that prior to

14 our exercise of jurisdiction there exist a constitutional ‘case or controversy,’ that the

15 issues presented are ‘definite and concrete, not hypothetical or abstract.’ . . . We need

16 not delve into the nuances of the distinction between the injury in fact prong of standing

17 and the constitutional component of ripeness: in this case, the analysis is the same.”).

18

“In evaluating the prudential aspects of ripeness, our analysis is guided by two

19 overarching considerations: ‘the fitness of the issues for judicial decision and the

20 hardship to the parties of withholding court consideration.’” Thomas, 220 F.3d at 1141.

21 When the question presented “is ‘a purely legal one’” that “constitutes ‘final agency

22 action’ within the meaning of § 10 of the APA,” that suggests the issue is fit for judicial

23 decision. Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 812 (2003). However,

24 an issue may not be ripe for review if “further factual development would ‘significantly

25 advance our ability to deal with the legal issues presented.’” Id.

26

Defendants argue that plaintiffs’ claims are not ripe because the CARES Act

27 creates a tax credit for taxable year 2020 and, although many tax credits have been sent

28 out as advance refund payments, the ultimate amount of the tax credit will not be

12

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 13 of 45

United States District Court Northern District of California

1 determined until plaintiffs file their 2020 tax returns. Opp. at 10. According to

2 defendants, Congress contemplated that the ultimate amount or even eligibility for the tax

3 credit would not be determined until these tax returns are filed. Id. Next, defendants

4 argue that because Congress permits EIPs to be issued as late as December 31, 2020, it

5 is premature to find the advance payments are wrongfully withheld until that dates

6 passes. Id. Finally, they contend that the FAQ addressing incarcerated persons is not a

7 formal administrative decision, it has not undergone formal or informal rulemaking, and

8 does not address many aspects of plaintiffs’ claims. Id. at 11.

9

With respect to constitutional ripeness, plaintiffs advance the same argument as

10 standing, that they are currently being denied payment of the advance refund. Reply at

11 8. With regard to prudential ripeness, plaintiffs state they are not challenging the FAQ;

12 rather they are challenging the IRS’s policy of withholding EIP benefits from incarcerated

13 persons. Id. at 9.

14

Because the court has determined that plaintiffs have standing, their claims are

15 constitutionally ripe for adjudication. See Thomas, 220 F.3d at 1139; Doe, 2020 WL

16 5076999, at *4 (“The statute is in effect, and Plaintiff has been denied a benefit based on

17 a statutory classification that she alleges to be unconstitutional. The Government’s

18 ripeness argument is essentially no different from its standing argument and does not bar

19 Plaintiff’s lawsuit.”). The remaining ripeness issue is whether plaintiffs’ APA claims are

20 prudentially ripe for review.

21

i.

Fitness of Issues for Judicial Decision

22

When considering whether issues are fit for review, the question should be a

23 “purely legal one” and the agency action in question should constitute a “‘final agency

24 action’ within the meaning of § 10 of the APA.” Nat’l Park Hosp. Ass’n, 538 U.S. at 812

25 (quoting 5 U.S.C. § 704; and Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967),

26 abrogated on other grounds as recognized in Califano, 430 U.S. at 105). In some cases,

27 even when the question is purely legal and concerning a final agency action, further

28 factual development might be warranted to “significantly advance [the court’s] ability to

13

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 14 of 45

United States District Court Northern District of California

1 deal with the legal issues presented.” Id. (quoting Duke Power Co. v. Carolina Env’t

2 Study Grp., Inc., 438 U.S. 59, 82 (1978)).

3

Here, plaintiffs’ challenge is a purely legal one. Their APA claims depend on

4 whether the Treasury Secretary and the IRS are properly interpreting and implementing

5 the CARES Act. See Abbott Labs., 387 U.S. at 149 (noting that “whether the statute was

6 properly construed by the Commissioner” to be a purely legal challenge).

7

Next, section 10 of the APA, 5 U.S.C. § 704, provides for judicial review for a “final

8 agency action for which there is no other adequate remedy in a court.” The definition of

9 “agency action,” by cross reference of section 701 of the APA, is located at title 5 U.S.C.

10 § 551, which defines “agency action” as “the whole or a part of an agency rule, order,

11 license, sanction, relief, or the equivalent or denial thereof, or failure to act.” 5 U.S.C.

12 § 551(13). In turn, relief is defined in part as “the whole or part of an agency grant of

13 money, assistance, license, authority, exemption, exception, privilege, or remedy . . . .” 5

14 U.S.C. § 551(11)(A). Plaintiffs here are not challenging a rule or regulation promulgated

15 by the IRS but rather the agency’s decision to exclude incarcerated persons from those

16 eligible individuals receiving an advance refund pursuant to the CARES Act. Since the

17 advance refund is a grant of money, the denial of the advance refund is an agency

18 action.

19

The remaining issue is whether the IRS’s action is final such that it is reviewable or

20 whether it is “preliminary, procedural, or intermediate” and not directly reviewable. 5

21 U.S.C. § 704. There are two conditions for an agency action to be final under the APA:

22 “First, the action must mark the consummation of the agency’s decision-making

23 process—it must not be of a merely tentative or interlocutory nature. And second, the

24 action must be one by which rights or obligations have been determined, or from which

25 legal consequences will flow.” U.S. Army Corps of Eng’rs v. Hawkes Co., 136 S. Ct.

26 1807, 1813 (2016) (quoting Bennett v. Spear, 520 U.S. 154, 177–78 (1997)); Or. Nat.

27 Desert Ass’n v. U.S. Forest Serv., 465 F.3d 977, 982 (9th Cir. 2006) (“[T]he core question

28 is whether the agency has completed its decisionmaking process, and whether the result

14

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 15 of 45

United States District Court Northern District of California

1 of that process is one that will directly affect the parties.” (alteration in original) (citation

2 omitted)).

3

Here, several facts indicate that the IRS’s decision to withhold or deny EIPs to

4 incarcerated persons is final. After initially disbursing EIPs to incarcerated persons, the

5 IRS reversed its decision and, as described in its FAQs, unequivocally took the position

6 that someone who is incarcerated does not qualify for the EIP and should return any prior

7 payments. Salahi Decl., Ex. 4. Significantly, defendants submitted a declaration stating

8 that the FAQ addressed the question of whether incarcerated persons may receive an

9 advance payment under the CARES Act. Desmond Decl. ¶ 8. Further, the declaration

10 confirms that the IRS decided that individuals deemed to be incarcerated as of April 30,

11 2020 would not receive advance refund payments. Id. ¶ 7. This statement indicates that

12 the IRS’s decision regarding the advance refund is final.

13

Next, plaintiffs submit evidence that the IRS changed its internal manual to define

14 eligible individuals as any individual other than incarcerated individuals, deceased

15 individuals, a filer of Form 1040-NR, 1040-PR, or 1040SS and the three categories

16 outlined in subsection (d) of section 6428. Salahi Decl., Ex. 5 at 2. This further supports

17 the conclusion that the IRS considers the issue of advance refund payments to

18 incarcerated persons to be settled.

19

Buttressing this conclusion is the timing of the CARES Act. The IRS has

20 established a deadline of October 15, 2020 for non-filers to use the non-filer tool to create

21 a 2019 tax return in order to be eligible for an EIP by the end of the year. Salahi Decl.,

22 Ex. 3 at 1. Congress requires the IRS to disburse all advance refunds by December 31,

23 2020. § 6428(f)(3)(A). These impending deadlines indicate that no further change to

24 IRS’s decision is forthcoming and the decisionmaking process is complete.

25

With regard to whether the agency action is one by which rights or obligations

26 have been determined, the IRS’s decision has clearly determined a right. In this case,

27 the IRS has determined that incarcerated persons are not eligible to receive an advance

28 refund. Plaintiffs, as incarcerated or formerly incarcerated persons, were demonstrably

15

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 16 of 45

United States District Court Northern District of California

1 affected by this decision, alleging they are otherwise eligible to receive the EIP but did

2 not receive the payment. More broadly, the impact of the IRS’s decision is evidenced by

3 the fact that the IRS initially issued EIPs to incarcerated persons and then, because of its

4 decision, intercepted payments or ordered recipients to return payments. Compl. ¶¶ 16–

5 17; Salahi Decl., Ex. 6 at 5.

6

For the foregoing reasons, the court finds that the IRS’s decision to withhold

7 advance refunds to incarcerated persons is a final agency action, that no further factual

8 development is needed, and, therefore, the issue is fit for judicial review.

9

ii.

Hardship to the Parties

10

The second factor examines “the hardship to the parties of withholding court

11 consideration.” Nat’l Park Hosp. Ass’n, 538 U.S. at 808. Generally, a showing of

12 hardship requires demonstrating that the regulation in question creates “adverse effects

13 of a strictly legal kind.” Id. at 809 (quoting Ohio Forestry Ass’n, Inc. v. Sierra Club, 523

14 U.S. 726, 733 (1998)). Such adverse effects do not arise if the regulation in question

15 “do[es] not command anyone to do anything or to refrain from doing anything; [it] do[es]

16 not grant, withhold, or modify any formal legal license, power, or authority; [it] do[es] not

17 subject anyone to any civil or criminal liability; [and it] create[s] no legal rights or

18 obligations.” Id. (alterations in original) (quoting Ohio Forestry Ass’n, 523 U.S. at 733).

19

Similar to the inquiry whether legal rights or obligations have been determined by

20 the IRS, the agency’s decision imposes potential adverse effects of a strictly legal kind.

21 As discussed, the IRS’s decision withholds payment of the advance refund to all

22 incarcerated persons. Plaintiffs contend that they have a legal interest in the advance

23 refund and defendants dispute that point. Whether the CARES Act creates a legal

24 interest in the advance refund goes to the merits of plaintiffs’ claim, but if plaintiffs are

25 likely to succeed on their claims, then they would have established a legal interest in the

26 advance refund.

27

Finally, defendants suggest that because the CARES Act sunsets payment of the

28 advance refunds for December 31, 2020, plaintiffs’ claims are not ripe until that date

16

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 17 of 45

United States District Court Northern District of California

1 passes. Opp. at 10. As discussed, the decision to deny the EIP has already occurred

2 and Van, 962 F.3d at 1161, holds that delayed payment is a concrete injury. Moreover,

3 crediting defendants’ argument would put plaintiffs in an untenable position. If they wait

4 until after December 31, 2020 to challenge the IRS’s withholding of the advanced refund,

5 then the advance refunds will not be available to them and it is not clear that the court

6 could order any relief under the APA when Congress unambiguously mandated an end

7 date to the advance refunds. Under defendants’ ripeness theory, plaintiffs would have to

8 either pursue a claim pursuant to the Little Tucker Act or claim the tax credit on their 2020

9 tax returns—either option entails months or years of legal and practical barriers—and

10 defeats the entire theory of plaintiffs’ case, that they are presently being harmed by the

11 decision not to issue advance refunds to them.

12

In light of the foregoing, the court finds the hardship of withholding judicial review

13 prong met and, therefore, plaintiffs have established that their APA claims are

14 prudentially ripe for review.

15

c. Sovereign Immunity

16

“Absent a waiver, sovereign immunity shields the Federal Government and its

17 agencies from suit.” FDIC v. Meyer, 510 U.S. 471, 475 (1994). This immunity also

18 extends to federal officers sued in their official capacity. See Dugan v. Rank, 372 U.S.

19 609, 620 (1963); Aminoil U.S.A., Inc. v. Cal. State Water Res. Control Bd., 674 F.2d

20 1227, 1233 (9th Cir.1982). A “waiver of sovereign immunity must be unequivocally

21 expressed in statutory text,” and be “clearly evident from the language of the statute.”

22 FAA v. Cooper, 566 U.S. 284, 290 (2012) (internal quotation marks omitted).

23

“[T]he Administrative Procedure Act provides a broad waiver of sovereign

24 immunity so long as certain conditions are met.” S. Delta Water Agency v. United States,

25 767 F.2d 531, 535 (9th Cir. 1985). Section 702 of the APA waives sovereign immunity;

26 however, the Ninth Circuit has held that claims brought pursuant to the APA must also

27 satisfy § 704’s provisions. Navajo Nation v. Dep’t of the Interior, 876 F.3d 1144, 1170

28 (9th Cir. 2017). Because plaintiffs in this case bring two claims under the APA, and move

17

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 18 of 45

United States District Court Northern District of California

1 for a preliminary injunction based only on those APA claims, they must meet the

2 requirements of § 704 in order for the court to determine that Congress waived sovereign

3 immunity.

4

Defendants broadly argue that the IRS’s answer to the FAQ is not a final agency

5 action for which there is no adequate alternative. Opp. at 14. As discussed with regard

6 to prudential ripeness, the court finds that the IRS’s decision not to disburse EIPs to

7 incarcerated persons constitutes a final agency action. Thus, the only remaining inquiry

8 is whether there are any adequate alternatives to APA review in court. See Hawkes, 136

9 S. Ct. at 1815 (“Even if final, an agency action is reviewable under the APA only if there

10 are no adequate alternatives to APA review in court.”).

11

Defendants contend that plaintiffs have such an adequate alternative, which is to

12 bring a refund claim pursuant to 26 U.S.C. § 7422. Opp. at 15 (citing United States v.

13 Clintwood Elkhorn Mining Co., 553 U.S. 1, 4–5 (2008)). Plaintiffs assert that section

14 7422 is not an adequate alternative because they are not seeking to recover tax imposed

15 or collected by the IRS. Reply at 10. They further contend that section 7422 does not

16 permit prospective injunctive and declaratory relief, which they seek in this case. Id. at

17 11. Finally, plaintiffs argue that even if section 7422 applies, then it is not an adequate

18 alternative because it would entail years of delay to file a tax return, file administrative

19 claims, exhaust those claims, and then file in court. Id.

20

Title 26 U.S.C. § 7422(a) states that:

21

[n]o suit . . . shall be maintained in any court for the recovery of

any internal revenue tax alleged to have been erroneously or

22

illegally assessed or collected, or of any penalty claimed to

have been collected without authority, or of any sum alleged to

23

have been excessive or in any manner wrongfully collected,

until a claim for refund . . . has been duly filed with [the IRS].

24

25 Beginning with the text of the statute, plaintiffs’ APA claims do not clearly fall within the

26 ambit of § 7422(a). Plaintiffs are not alleging that a tax was erroneously or illegally

27 assessed or collected, a penalty was collected without authority, or any sum is alleged to

28 be excessive. Instead, they contend that Congress requires the IRS to disburse the Act’s 18

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 19 of 45

United States District Court Northern District of California

1 advance refund without excluding incarcerated persons and the IRS is not faithfully

2 adhering to the statutory command. E.g., Compl. ¶¶ 18, 20.

3

Next, the nature of plaintiffs’ relief falls outside the relief permitted by § 7422.

4 They seek a preliminary injunction requiring defendants to enjoin the decision to exclude

5 incarcerated persons from those eligible to receive an EIP, amongst other injunctive and

6 declaratory relief. Mtn. at viii; Compl. ¶¶ 43, 48–49. Both the Fourth and D.C. Circuits

7 have concluded that because § 7422(a) references “recovery of any internal revenue

8 tax”, the statute does not explicitly allow for the type of prospective equitable relief

9 requested by plaintiffs. King v. Burwell, 759 F.3d 358, 366 (4th Cir. 2014), aff’d, 576 U.S.

10 473 (2015); Cohen v. United States, 650 F.3d 717, 732 (D.C. Cir. 2011) (en banc)

11 (“§ 7422(a) would not provide Appellants the equitable relief they seek. Section 7422(a)

12 provides “for the recovery of any internal revenue tax.” It does not, at least explicitly,

13 allow for prospective relief.” (citation omitted)).

14

Defendants cite no case in which a court has determined sovereign immunity not

15 to be waived on the grounds that the parties were first required to pursue a tax refund

16 action under 26 U.S.C. § 7422(a). See King, 759 F.3d at 366 (noting defendants “fail[ed]

17 to point to a single case in which a court has refused to entertain a similar suit on the

18 grounds that the parties were required to first pursue a tax-refund action under 26 U.S.C.

19 § 7422(a) or 28 U.S.C. § 1346”). The court also finds persuasive the district court’s

20 opinion in Amador v. Mnuchin, 2020 WL 4547950, at *6–10, which exhaustively

21 describes the same sovereign immunity analysis and concludes that § 7422(a) is not an

22 adequate alternative to the APA.

23

Finally, there is a disconnect between the motivating purpose of the CARES Act

24 on the one hand and the adequate alternative proposed by defendants on the other. The

25 CARES Act instructs the Treasury Secretary to distribute economic stimulus to eligible

26 individuals “as rapidly as possible.” 26 U.S.C. § 6428(f)(3)(A). While the IRS has

27 indicated that it will permit eligible individuals who were incarcerated for a portion of 2020

28 to eventually receive the CARES Act tax credit, (Desmond Decl. ¶ 8), they make no such

19

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 20 of 45

United States District Court Northern District of California

1 declaration with regard to individuals incarcerated for the entirety of 2020. This means

2 that such an incarcerated person would have to wait until he or she files a 2020 tax

3 return, then wait for the IRS to deny their claim, then exhaust all administrative claim

4 requirements before the claimant can file a suit in federal court pursuant to § 7422. See

5 26 U.S.C. § 6531(a)(1). As summarized by the Amador court, “[f]orcing plaintiffs to

6 exhaust their administrative remedies would be an “arduous, expensive, and long”

7 process . . . .” 2020 WL 4547950, at *9 (quoting Hawkes, 136 S. Ct. at 1815–16).

8

In sum, the alternative form of relief suggested by defendants is not an adequate

9 alternative for APA review. Plaintiffs do not have an adequate alternative relief and they

10 meet the requirements of sections 702 and 704 of the APA such that Congress has

11 waived sovereign immunity in this case. The court need not reach defendants’ argument

12 concerning the Little Tucker Act, (Opp. at 12–14), because plaintiffs do no not rely on that

13 act as waiving sovereign immunity for their motion for preliminary injunction.

14

2. Likelihood of Success on the Merits

15

a. Section 706(2)—Contrary to Law

16

As an initial matter, it is necessary to determine what deference, if any, is owed to

17 the IRS’s interpretation of the CARES Act. Defendants advance no argument regarding

18 deference and, in their reply brief, plaintiffs contend that defendants’ interpretation is

19 nothing more than a “litigation position” to which the court owes no deference. Reply at

20 5.

21

Whether an agency’s interpretation of a statute is owed any deference varies with

22 the circumstances surrounding the agency’s interpretation. “[C]ourts have looked to the

23 degree of the agency’s care, its consistency, formality, and relative expertness, and to

24 the persuasiveness of the agency’s position.” United States v. Mead Corp., 533 U.S.

25 218, 228 (2001) (footnotes omitted) (citing Skidmore v. Swift & Co., 323 U.S. 134, 139–

26 40 (1944)). The CARES Act contains an express authorization to engage in the

27 rulemaking process; section 6428(h) permits the Treasury Secretary to prescribe such

28 regulations or other guidance necessary to carry out the purpose of the CARES Act. The

20

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 21 of 45

United States District Court Northern District of California

1 rulemaking authorization indicates that deference might be required by Chevron, U.S.A.

2 v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See Encino

3 Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (“A premise of Chevron is that

4 when Congress grants an agency the authority to administer a statute by issuing

5 regulations with the force of law, it presumes the agency will use that authority to resolve

6 ambiguities in the statutory scheme.” (citations omitted)).

7

Despite this authorization, defendants readily admit that the IRS has not issued a

8 regulation and did not follow any notice-and-comment procedure in issuing its guidance

9 (i.e., the FAQ response on incarcerated persons) concerning the CARES Act. Opp. at

10 11. The lack of notice-and-comment rulemaking indicates that Chevron deference is not

11 appropriate here. As Mead teaches, “[a]n agency’s interpretation of ‘a particular statutory

12 provision’ thus qualifies for Chevron deference only ‘when it appears that Congress

13 delegated authority to the agency generally to make rules carrying the force of law, and

14 that the agency interpretation claiming deference was promulgated in the exercise of that

15 authority.’” City of Arlington, Tex. v. F.C.C., 569 U.S. 290, 320 (2013) (Roberts, C.J.,

16 dissenting) (emphasis added) (quoting Mead, 533 U.S. at 226–27); see also United

17 States v. Trident Seafoods Corp., 60 F.3d 556, 559 (9th Cir.1995) (“No deference is

18 owed when an agency has not formulated an official interpretation of its regulation, but is

19 merely advancing a litigation position.”).

20

The court thus approaches two interpretive questions without any deference to the

21 IRS’s position. First, whether the CARES Act mandates the IRS to issue advance

22 refunds or whether it has discretion to withhold the advance refund and force otherwise

23 eligible individuals to file for the CARES Act payment as a tax credit. Second, whether

24 incarcerated persons are eligible individuals for purposes of the CARES Act.

25

Starting with the plain language of the statute, subsection (f)(1), which governs the

26 advance refunds, states “each individual who was an eligible individual for such

27 individual’s first taxable year beginning in 2019 shall be treated as having made a

28 payment against the tax imposed by chapter 1 for such taxable year in an amount equal

21

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 22 of 45

United States District Court Northern District of California

1 to the advance refund amount for such taxable year.” § 6428(f)(1). As explained by a

2 recent opinion, subparagraph (f)(1) “creat[es] a legal fiction that qualified individuals

3 ‘overpaid’ on previously filed taxes.” R.V. v. Mnuchin, 2020 WL 3402300, at *7 (D. Md.

4 June 19, 2020). The Second Circuit arrived at the same conclusion with respect to an

5 earlier version of § 6428 that disbursed advance refunds in response to the 2008

6 financial crisis.7 See Sarmiento v. United States, 678 F.3d 147, 156 (2d Cir. 2012). The

7 court explained that the term “shall be treated” was “best interpreted as establishing the

8 legal fiction that eligible taxpayers overpaid their 2007 taxes in an amount equal to the

9 ‘advance refund’ of their [Economic Stimulus Act] stimulus credit, and not merely as a

10 ‘mechanism for making an advance payment or refund and credit for the 2008 tax year.’”

11 Id. (citation omitted).

12

Subsection (f)(2) then defines the amount of the advance refund as “the amount

13 that would have been allowed as a credit under this section for such taxable year if this

14 section (other than subsection (e) and this subsection) had applied to such taxable year.”

15 § 6428(f)(2). The phrase “the amount that would have been allowed as a credit under

16 this section” references the credit defined in subsection (a), i.e., $1,200 per taxpayer

17 ($2,400 if filing jointly) and $500 per dependent child. § 6428(a).

18

Subsection (f)(3) describes payment of the advance refund: “The Secretary shall,

19 subject to the provisions of this title, refund or credit any overpayment attributable to this

20 section as rapidly as possible.” § 6428(f)(3) (emphasis added). The use of the word

21 “shall” indicates a mandatory command from Congress to the Treasury Department and

22 the IRS to issue the advance refund and to do so rapidly. See Serv. Emps. Int’l Union v.

23 United States, 598 F.3d 1110, 1113 (9th Cir. 2010) (“The word ‘shall’ is ordinarily [t]he

24

25 7 Congress has implemented two previous stimulus payments using similar language as

26

the CARES Act. First, Congress enacted the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107–16, 115 Stat. 42, which “provided eligible

27

taxpayers a tax credit ‘for 2001,’ the year the statute was enacted, by means of an “advance refund” of constructively overpaid taxes.” Sarmiento, 678 F.3d at 156. Second,

28

Congress enacted the Economic Stimulus Act of 2008, Pub. L No. 110-185, 122 Stat. 613, in response to the 2008 financial crisis.

22

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 23 of 45

United States District Court Northern District of California

1 language of command.” (internal quotation marks and citations omitted)); see also R.V.,

2 2020 WL 3402300, at *7 (“The Act therefore requires the government to pay the fictional

3 overpayment, and be quick about it.”). The language does not confer discretion on the

4 Secretary to decline to issue advance refunds.8

5

The statutory structure confirms that Congress intended the IRS to issue

6 payments as quickly as possible. As is self-evident from the language, the advance

7 refund provision contained in subsection (f) was intended to be issued “as rapidly as

8 possible.” § 6428(f)(3)(A). The tax credit described in subsection (a) is simply a “legal

9 fiction,” Sarmiento, 678 F.3d at 156, used to issue the advance refund as soon as

10 possible. See also Doe v. Trump, 2020 WL 5492994, at *4 (C.D. Cal. Sept. 2, 2020)

11 (“Congress did not want the IRS to wait until individuals submitted their 2020 tax returns

12 to determine if those individuals were eligible for the Advance Credit. Rather, Congress

13 authorized the IRS to immediately determine eligibility based on prior tax returns.”).

14 Additionally, as plaintiffs point out, subsection (e)(1) provides that the amount of the tax

15 credit will be reduced by the amount of any advance refund, but not below zero. Thus, if

16 a taxpayer’s status changes between the time of the advance refund and the tax credit,

17 the taxpayer will not be penalized. Thus, the advance refund is meant to come first, to be

18 reconciled later on a taxpayer’s 2020 returns. Thus, the structure indicates that

19 Congress intended for the advance refund to be paid first and then reconciled later on a

20 taxpayer’s 2020 returns.

21

Defendants contend that the CARES Act does not mandate that plaintiffs receive

22 an advance refund of a CARES Act credit. Opp. at 12. They cite no authority for this

23

24 8 Even if the court were to read subsection (h), which permits the Secretary to establish

25

regulations or other guidance, as permitting discretion in carrying out the advance refunds, the statutory text is clear. Where a statute grants an agency discretion, “that

26

discretion may only be exercised within the bounds of the statutory definition itself.” Safer Chemicals, Healthy Families v. U.S. Envtl. Prot. Agency, 943 F.3d 397, 425 (9th

27

Cir. 2019) (citing Massachusetts v. EPA, 549 U.S. 497, 533 (2007)). “Where Congress has explicitly provided a definition for a term, and that definition is clear, an agency must

28

follow it.” Id. Moreover, as noted, defendants have not advanced any argument concerning discretion.

23

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 24 of 45

United States District Court Northern District of California

1 proposition and do not attempt to explain how the Secretary can ignore the requirement

2 to distribute the refund as rapidly as possible. See Util. Air Regulatory Grp. v. E.P.A.,

3 573 U.S. 302, 327 (2014) (“The power of executing the laws necessarily includes both

4 authority and responsibility to resolve some questions left open by Congress that arise

5 during the law’s administration. But it does not include a power to revise clear statutory

6 terms that turn out not to work in practice.”). In sum, the language of the statute

7 unambiguously mandates disbursement of the advance refund and requires the

8 Secretary to do so expeditiously.

9

The second inquiry is whether incarcerated persons are eligible individuals. On

10 this question, the statute is brief and to the point. Section 6428(d) states:

11

For purposes of this section, the term “eligible individual”

means any individual other than (1) any nonresident alien

12

individual, (2) any individual with respect to whom a deduction

under section 151 is allowable to another taxpayer for a taxable

13

year beginning in the calendar year in which the individual’s

taxable year begins, and (3) an estate or trust.

14

15 § 6428(d). There is no indication that Congress left the definition of “eligible individual”

16 open-ended or otherwise up to the Secretary’s discretion to change. See Jimenez v.

17 Quarterman, 555 U.S. 113, 118 (2009) (“It is well established that, when the statutory

18 language is plain, we must enforce it according to its terms.”).

19

There is also no indication that Congress intended to exclude incarcerated

20 persons in the same way that the definition of “eligible individual” excludes certain

21 categories of persons or entities. As both parties acknowledge, (Mtn. at 11; Opp. at 18

22 n.13), in 2008 Congress passed a stimulus bill that was also codified at title 26 U.S.C.

23 § 6428 in response to the 2008 financial crisis. See Pub. L. No. 110-185, 122 Stat. 613

24 (2008). That version of the statute also defined “eligible individual” by excluding the

25 exact same three categories of individuals. § 6428(e)(3) (2012). Unlike the current

26 version of the statute, the 2008 stimulus required a recipient of the payment have a

27 minimum qualifying income of $3,000 or a net tax liability greater than zero. § 6428(b)(2).

28 In turn, qualifying income was defined in reference to the term “earned income” which 24

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 25 of 45

United States District Court Northern District of California

1 was then defined in reference to 26 U.S.C. § 32(c)(2). § 6428(e)(4). At the end of all

2 those cross-references, the definition of “earned income” provided that “no amount

3 received for services provided by an individual while the individual is an inmate at a penal

4 institution shall be taken into account. § 32(c)(2)(B)(iv). The fact that Congress

5 previously devised a method to indirectly exclude incarcerated persons from the 2008

6 stimulus but included no such provision here indicates that Congress did not intend to

7 exclude incarcerated persons from the definition of “eligible individual.”

8

The court also finds persuasive the fact that the IRS has asserted three different

9 interpretations of the term “eligible individual” since the enactment of the Act, barely six

10 months ago. Initially, the IRS disbursed nearly 85,000 EIPs to incarcerated persons and,

11 when the TIGTA questioned IRS management about this decision, the IRS “noted that

12 payments to these populations were allowed because the CARES Act does not prohibit

13 them from receiving a payment.” Salahi Decl., Ex. 6 at 5. Then, as reflected in the FAQ,

14 (id., Ex. 4 at 2–3), the IRS’s internal procedure manual, (id., Ex. 5 at 2), and the TIGTA

15 report, (id., Ex. 6 at 5), the IRS decided that incarcerated individuals are not eligible.

16 Now, the IRS takes the position in this litigation that, subject to generally applicable

17 administrative and judicial rules, the IRS plans to allow otherwise eligible individuals who

18 were only incarcerated for a portion of tax year 2020 to claim a CARES Act tax credit.

19 Desmond Decl. ¶ 8. The shifting interpretation demonstrates that the IRS “went well

20 beyond the ‘bounds of its statutory authority.’” Utility Air Reg. Grp., 573 U.S. at 326

21 (quoting Arlington, 569 U.S. at 297).

22

In sum, the court finds that plaintiffs are likely to succeed on the merits of their

23 APA contrary to law claim. The statute mandates distribution of the advance refund to

24 eligible individuals. Incarcerated persons who otherwise qualify for an advance refund

25 are not excluded as an “eligible individual.” The IRS’s decision to exclude incarcerated

26 persons from advance refund payments is likely contrary to law.

27

b. Section 706(2)—Arbitrary & Capricious

28

“‘[A]rbitrary and capricious’ review under the APA focuses on the reasonableness

25

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 26 of 45

United States District Court Northern District of California

1 of an agency’s decision-making processes.” CHW W. Bay v. Thompson, 246 F.3d 1218,

2 1223 (9th Cir. 2001) (citations omitted). Agency action is invalid if the agency fails to give

3 adequate reasons for its decisions, fails to examine the relevant data, or offers no

4 “rational connection between the facts found and the choice made.” Motor Vehicle Mfrs.

5 Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also

6 Encino Motorcars, 136 S. Ct. at 2125. “Chevron deference is not warranted where the

7 regulation is ‘procedurally defective’—that is, where the agency errs by failing to follow

8 the correct procedures in issuing the regulation.” Encino Motorcars, 136 S. Ct. at 2125

9 (quoting Mead, 533 U.S. at 227). A rule is arbitrary and capricious if the agency has

10 “entirely failed to consider an important aspect of the problem, offered an explanation for

11 its decision that runs counter to the evidence before the agency, or is so implausible that

12 it could not be ascribed to a difference in view or the product of agency expertise.” State

13 Farm, 463 U.S. at 43.

14

Agencies are required to “reflect upon the information contained in the record and

15 grapple with contrary evidence.” Fred Meyer Stores, Inc. v. NLRB, 865 F.3d 630, 638

16 (D.C. Cir. 2017) (citing Haw. Dredging Constr. Co. v. NLRB, 857 F.3d 877, 881–82 (D.C.

17 Cir. 2017)). Where “the agency has failed to ‘examine the relevant data’ or failed to

18 ‘articulate a rational explanation for its actions,’” its decision is arbitrary and capricious.

19 Genuine Parts Co. v. EPA, 890 F.3d 304, 311–12 (D.C. Cir. 2018) (quoting Carus Chem.

20 Co. v. EPA, 395 F.3d 434, 441 (D.C. Cir. 2005)). And where an agency is uncertain

21 about the effects of agency action, it may not rely on “‘substantial uncertainty’ as a

22 justification for its actions.” Greater Yellowstone Coal., Inc. v. Servheen, 665 F.3d 1015,

23 1028 (9th Cir. 2011) (quoting State Farm, 463 U.S. at 52). Instead, it must “rationally

24 explain why the uncertainty” supports the chosen approach. Id. (“Otherwise, we might as

25 well be deferring to a coin flip.”). “[A]n internally inconsistent analysis is arbitrary and

26 capricious.” Nat’l Parks Conservation Ass’n v. E.P.A., 788 F.3d 1134, 1141 (9th Cir.

27 2015) (citing Gen. Chem. Corp. v. United States, 817 F.2d 844, 857 (D.C. Cir. 1987) (per

28 curiam)).

26

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 27 of 45

United States District Court Northern District of California

1

But “[t]he scope of review under the ‘arbitrary and capricious’ standard is narrow

2 and a court is not to substitute its judgment for that of the agency.” State Farm, 463 U.S.

3 at 43; San Luis & Delta-Mendota Water Auth. v. Jewell, 747 F.3d 581, 601 (9th Cir. 2014)

4 (“Although our inquiry must be thorough, the standard of review is highly deferential; the

5 agency’s decision is ‘entitled to a presumption of regularity,’ and we may not substitute

6 our judgment for that of the agency.” (quoting Citizens to Preserve Overton Park, Inc. v.

7 Volpe, 401 U.S. 402, 415–16 (1971), abrogated in part on other grounds as recognized in

8 Califano v. Sanders, 430 U.S. 99, 105 (1977))).

9

Here, the IRS has put forward virtually no public explanation concerning its

10 decision to withhold payments to incarcerated persons. On May 6, 2020, the IRS posted

11 the following explanation on its website:

12

Q15. Does someone who is incarcerated qualify for the

Payment? 13

A15. No. A Payment made to someone who is incarcerated

14

should be returned to the IRS by following the instructions

about repayments. A person is incarcerated if he or she is

15

described in one or more of clauses (i) through (v) of Section

202(x)(1)(A) of the Social Security Act (42 U.S.C.

16

§ 402(x)(1)(A)(i) through (v)). For a Payment made with

respect to a joint return where only one spouse is incarcerated,

17

you only need to return the portion of the Payment made on

account of the incarcerated spouse. This amount will be $1,200

18

unless adjusted gross income exceeded $150,000.

19 Compl. ¶ 15. This answer described who is an incarcerated person and how an

20 incarcerated person should return an EIP. It does not describe why or how the IRS

21 arrived at its decision to deny payments to incarcerated persons. Similarly, defendants

22 appear to have amended their internal procedure manual to add “an incarcerated

23 individual” to the list of excluded individuals who are not eligible for a payment even after

24 having made such payments at the outset of the EIP disbursement. Salahi Decl., Ex. 5.

25

Defendants have not directed the court to any other evidence indicating that the

26 Treasury Department or IRS gave any reason for its decision, much less an adequate

27

28 27

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 28 of 45

United States District Court Northern District of California

1 one.9 While the court is cognizant of the burdens imposed by society’s response to the

2 COVID-19 pandemic layered onto the challenge of administering a massive stimulus

3 program in a short amount of time, a basic tenet of the APA (and government generally)

4 is to explain the basis for an agency’s decision that affects legal rights and

5 responsibilities. The fact that defendants offer virtually no defense on the merits of

6 plaintiffs’ arbitrary and capricious claim is telling. This concession is compounded by the

7 shifting interpretation of the term “eligible individual” with no corresponding public

8 explanation of why the IRS changed its interpretation or the basis for its current position.

9

For the foregoing reasons, the court finds plaintiffs are likely to succeed on the

10 merits of their APA arbitrary and capricious claim. Because both claims are likely to

11 succeed on the merits, the court does not reach plaintiffs’ claim under 5 U.S.C. § 706(1)

12 that an agency action is unlawfully withheld or unreasonably delayed.

13

3. Irreparable Harm

14

“A plaintiff seeking preliminary relief must ‘demonstrate that irreparable injury is

15 likely in the absence of an injunction.’” California v. Azar, 911 F.3d 558, 581 (9th Cir.

16 2018) (quoting Winter, 555 U.S. at 22); Boardman v. Pac. Seafood Grp., 822 F.3d 1011,

17 1023 (9th Cir. 2016) (“A threat of irreparable harm is sufficiently immediate to warrant

18 preliminary injunctive relief if the plaintiff ‘is likely to suffer irreparable harm before a

19 decision on the merits can be rendered.’” (quoting Winter, 555 U.S. at 22))).

20

“There must be a ‘sufficient causal connection’ between the alleged irreparable

21 harm and the activity to be enjoined, and showing that ‘the requested injunction would

22 forestall’ the irreparable harm qualifies as such a connection.” Nat’l Wildlife Fed’n v. Nat’l

23 Marine Fisheries Serv., 886 F.3d 803, 819 (9th Cir. 2018) (citing Perfect 10, Inc. v.

24 Google, Inc., 653 F.3d 976, 981–82 (9th Cir. 2011)). “However, a plaintiff ‘need not

25 further show that the action sought to be enjoined is the exclusive cause of the injury.’”

26

27 9 While not dispositive, plaintiffs’ complaint quotes an IRS spokesperson who said, “I

28

can’t give you the legal basis. All I can tell you is this is the language the Treasury and ourselves have been using.” Compl. ¶ 18.

28

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 29 of 45

United States District Court Northern District of California

1 Id. (quoting M.R. v. Dreyfus, 697 F.3d 706, 728 (9th Cir. 2012)).

2

The irreparable harm “analysis focuses on irreparability, ‘irrespective of the

3 magnitude of the injury.’” Azar, 911 F.3d at 581 (quoting Simula, Inc. v. Autoliv, Inc., 175

4 F.3d 716, 725 (9th Cir. 1999)). “[T]he temporary loss of income, ultimately to be

5 recovered, does not usually constitute irreparable injury.” Sampson v. Murray, 415 U.S.

6 61, 90 (1974). But the general rule that “[e]conomic harm is not normally considered

7 irreparable” does not apply where there is no adequate remedy to recover those

8 damages, such as in APA cases. Azar, 911 F.3d at 581 (citing 5 U.S.C. § 702).

9

Whether the temporary loss of income constitutes an irreparable injury varies

10 depending on the facts of the case. For some, the temporary loss of income is a

11 temporary inconvenience and can be easily remedied at law. Thus, in Los Angeles

12 Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1202 (9th

13 Cir. 1980), the only alleged injury was lost revenues due to the plaintiff’s failure to acquire

14 an NFL team. The court determined that the injury was not irreparable because the lost

15 revenues would be compensable by a damage award if the plaintiff prevailed on the

16 merits. Id.; see also Kitazato v. Black Diamond Hosp. Invs., LLC, 655 F. Supp. 2d 1139,

17 1147 (D. Haw. 2009) (finding no irreparable harm where only injury was an increase in

18 management fees by plaintiff owners of Hawaii resort hotel). In Cool Fuel, Inc. v.

19 Connett, 685 F.2d 309, 313 (9th Cir. 1982), the president of the corporate taxpayer

20 admitted the taxpayer’s ability to pay the tax in question and the Ninth Circuit held that

21 the taxpayer had an adequate remedy at law.

22

For others, the temporary loss of income or benefits could seriously impair their

23 ability to procure the basic necessities of life. The Ninth Circuit in Beno v. Shalala, 30

24 F.3d 1057, 1064 n.10 (9th Cir. 1994), recognized an aspect of this noting that

25 “[n]umerous cases have held that reductions in [Aid to Families with Dependent Children]

26 benefits, even reductions of a relatively small magnitude, impose irreparable harm on

27 recipient families.” In dissent, Justice Marshall summarized the issue as follows:

28

I cannot accept the majority’s apparent holding, buried deep in

29

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 30 of 45

United States District Court Northern District of California

a footnote, that because of the Back Pay Act, a temporary loss

1

in income can never support a finding of irreparable injury, no

matter how severely it may affect a particular individual. Many

2

employees may lack substantial savings, and a loss of income

for more than a few weeks’ time might seriously impair their

3

ability to provide themselves with the essentials of life—e.g,.,

to buy food, meet mortgage or rent payments, or procure

4

medical services.

5 Sampson, 415 U.S. at 101 (Marshall, J., dissenting) (citations omitted). While Justice

6 Marshall’s statement is non-binding, the Ninth Circuit has held that irreparable harm can

7 exist where a plaintiff lacks the resources to procure the basic necessities of life.

8

In Jensen v. I.R.S., 835 F.2d 196, 198 (9th Cir. 1987), the plaintiff alleged that he

9 lost an opportunity to challenge a tax deficiency in tax court because the IRS failed to

10 send him a notice of deficiency. There was evidence in the record demonstrating that the

11 plaintiff earned $1,087 a month and the IRS seized $664 of that income leaving him $144

12 per month to support a family of five. Id. The Ninth Circuit10 reasoned that the levy on

13 the plaintiff’s wages caused more than monetary harm; “[i]t deprived [the plaintiff] of the

14 ability to provide necessities of life for himself and family.” Id.

15

In Lopez v. Heckler, 713 F.2d 1432, 1433 (9th Cir. 1983), the Ninth Circuit held

16 that there was an irreparable injury in a challenge to the policies and procedures in

17 terminating Social Security disability benefits. The court discussed at length the harm at

18 issue:

19

We also consider it crucial that, because the members of

plaintiffs’ class are largely infirm and disabled, their resources

20

and life spans are by definition extremely limited. Deprivation

of benefits pending trial might cause economic hardship,

21

suffering or even death. Retroactive restoration of benefits

22

23

10 Defendants would distinguish Jensen and other similar cases cited by plaintiffs as improperly relying on the Ninth Circuit’s “possibility” of irreparable harm standard that was

24

overturned by the Supreme Court in Winter v. Natural Resources Defense Council, Inc., 555 U.S. at 22. Opp. at 15. The Court reiterated that the correct standard is that a

25

plaintiff seeking preliminary relief must demonstrate that irreparable injury is likely in the absence of an injunction. Id. Yet, in Winter, the district court determined that the

26

plaintiffs had established a “near certainty” of irreparable harm. Id. Thus, Winter was referring to the likelihood of irreparable harm occurring, not the type of harm itself. This is

27

evident from the spectrum of terms used to describe the likelihood of an event occurring: possibility (insufficient), likely (sufficient), or near certainty (sufficient). As plaintiffs point

28

out, (Reply at 13), they cite cases not for the likelihood of harm but for whether loss of financial aid can constitute an irreparable harm at all.

30

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 31 of 45

United States District Court Northern District of California

would be inadequate to remedy these hardships. 1

2 Id. at 1437.

3

Before applying the foregoing standards, a brief review of the financial situation of

4 incarcerated persons is warranted. Incarcerated persons stand in a unique position of

5 sorts. On the one hand, the state provides some basic essentials regardless of income

6 such as housing, some food, and medical care. Because they have been sentenced,

7 state prisons need not and do not pay incarcerated persons anywhere near the minimum

8 wage. See U.S. Const. amend. XIII, § 1. Yet, most incarcerated persons have few

9 means to support themselves. Most individuals are economically disadvantaged before

10 they enter prison. Salahi Decl., Ex. 8 at 1 (citing 2015 study finding “incarcerated people

11 had a median annual income of $19,185 prior to their incarceration, which is 41% less

12 than non-incarcerated people of similar ages”). Due to the COVID-19 pandemic, the

13 economic downturn affecting Americans outside of prison also impacts those inside

14 prison. Plaintiff Scholl explained that he normally works as a porter and also receives

15 anywhere from $30 to $100 from outside publications that publish his art; however, his

16 hours worked as a porter have decreased as has his income from outside sources.

17 Declaration of Colin Scholl (“Scholl Decl.”), Dkt. 13, ¶ 5.

18

As plaintiffs and amici have demonstrated, prisons do not provide all basic

19 necessities required by incarcerated persons, including food and hygiene. With respect

20 to food, incarcerated people supplement their food with items from the commissary,

21 especially since plaintiffs submit evidence that some institutions have reduced the

22 number of calories or meals provided to inmates. Salahi Decl., Ex. 30 at 369 n.44. Food

23 insecurity is linked to negative health impacts, (Amicus Br. at 16), such that a delay in the

24 ability to purchase adequate food is a harm with immediate consequences. Plaintiffs also

25 present evidence that some penal institutions require inmates to pay for their own soap

26 and personal hygiene items. Salahi Decl., Ex. 25 at 2, Exs. 26–28. Moreover, both

27 individual plaintiffs filed declarations stating that they spend anywhere from $36 to $100 a

28 month on hygiene products. Scholl Decl. ¶ 4; Declaration of Lisa Strawn (“Strawn

31

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 32 of 45

United States District Court Northern District of California

1 Decl.”), Dkt. 14, ¶ 9.

2

Communication is also an issue for incarcerated persons. Prisons charge inmates

3 to use the telephone at an average rate of $5.70 in jail for a 15-minute call and $2.03 in

4 prison for the same time. Brief of Amici Curiae (“Amicus Br.”), Dkt. 40-1 at 8; Salahi

5 Decl., Ex. 19. At the same time, the COVID-19 pandemic has eliminated in person visits,

6 (Salahi Decl., Ex. 17), while infection in prisons dramatically increase. E.g., Strawn Decl.

7 ¶ 4 (over 2,000 people in San Quentin state prison infected). Plaintiff Scholl states that

8 contact helps him mitigate the psychological impacts of social isolation. Scholl Decl. ¶ 4.

9 Plaintiff Strawn states that without contact with friends and family, “it would have been

10 difficult and possibly impossible for us to maintain our mental and physical health in

11 prison and to focus on rehabilitation and reentry.” Strawn Decl. ¶ 9.

12

Incarcerated persons often cannot bear the entirety of costs associated with

13 acquiring basic necessities in prison—food, hygiene, and communication. The remaining

14 costs often fall on the families of the incarcerated. Amicus Br. at 9; Salahi Decl., Ex. 11;

15 Strawn Decl. ¶ 9. These families are also suffering from the economic effects of the

16 pandemic including loss of jobs or wages. Amicus Br. at 11; Salahi Decl., Ex. 16.

17 Moreover, the cost of supporting incarcerated persons does not end when they are

18 released from prison; family members are often asked to provide housing, employment,

19 and healthcare for formerly incarcerated persons. Amicus Br. at 9.

20

Individuals released from prison during 2020 who did not receive an advance

21 refund are also suffering harm. Defendants aver that the IRS currently plans to make the

22 CARES Act tax credit available to eligible individuals released from prison during 2020.

23 Desmond Decl. ¶ 7. Yet, the harms felt by recently released individuals is particularly

24 acute. They no longer have the housing and food provided by prison, have uncertain

25 employment, and often have additional financial burdens and other collateral

26 consequences associated with their time in prison. Amicus Br. at 20. Plaintiff Strawn is

27 exemplary of this category. She had one day to prepare for her release and would use

28 the EIP to pay for basic essentials such as food, clothes, and hygiene products. Strawn

32

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 33 of 45

United States District Court Northern District of California

1 Decl. ¶¶ 3, 7. In sum, recently released individuals face the same travails as non-

2 incarcerated eligible individuals who received an EIP but must wait until 2021 to receive a

3 tax credit from the IRS.

4

Irreparable harm does not lie where a plaintiff has an adequate remedy at law.

5 The foregoing evidence demonstrates that plaintiffs and those similarly situated are being

6 deprived basic necessities such as communication with loved ones, food, and hygiene

7 products. Because they often exist on the margins of the economy and struggle to

8 acquire basic necessities, the harm suffered by these individuals11 cannot be adequately

9 remedied with later monetary relief. Indeed, defendants have made clear their position

10 that such relief could only be sought after a taxpayer files a tax return in 2021 (for the

11 year 2020), the IRS denies the tax credit, the taxpayer exhausts all administrative

12 remedies, and then the taxpayer files suit. The evidence demonstrates that plaintiffs are

13 currently suffering harm and such harm is neither speculative nor remote.

14

To summarize, the irreparable harm “analysis focuses on irreparability,

15 ‘irrespective of the magnitude of the injury.’” Azar, 911 F.3d at 581. Plaintiffs have

16 established they are likely to be irreparably injured without an injunction.

17

4. Balance of Equities and Public Interest

18

“A court must ‘balance the interests of all parties and weigh the damage to each’ in

19 determining the balance of the equities.” CTIA – The Wireless Ass’n v. City of Berkeley,

20 928 F.3d 832, 852 (9th Cir. 2019) (quoting Stormans, Inc. v. Selecky, 586 F.3d 1109,

21 1138 (9th Cir. 2009)). “When the government is a party, the last two factors merge.”

22 Azar, 911 F.3d at 575. Therefore, the public interest analysis is subsumed in the balance

23 of equities.

24

The potential damage to plaintiffs and putative class members is evident from the

25

26

11 The parties spar over whether the harm suffered by families and friends of incarcerated persons is cognizable for purposes of the irreparable harm analysis. Mtn. at 18; Opp. at

27

17. While the court does not discount the immense burden felt by these family members, plaintiffs have sufficiently established an irreparable harm on their own and with respect

28

to putative class members. Therefore, the court does not reach the issue of whether it can weigh the harm felt by family members.

33

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 34 of 45

United States District Court Northern District of California

1 court’s discussion of irreparable harm. Briefly, the harm suffered by incarcerated persons

2 is acute and ongoing. Their interest in injunctive relief is substantial.

3

Defendants arguments concerning harms to the government are not persuasive.

4 First, defendants argue the IRS would be faced with significant logistical challenges if

5 they are required to issue an additional round of advance refund payments. Opp. at 18.

6 There is some force behind this argument as the IRS has administered a massive

7 stimulus program in a relatively short period while its employees also responded to the

8 burdens imposed by the pandemic response. A few facts mitigate the burden on the IRS.

9

First, the IRS already issued EIP payments to some incarcerated persons in April

10 2020, that they then intercepted or required to be returned. In that sense, the logistics of

11 issuing payments to incarcerated persons should be at least familiar. Second, as

12 defendants acknowledge, federal law requires the Federal Bureau of Prisons and the

13 head of any State agency charged with administration of prisons to provide the IRS with a

14 variety of information. Id. at 7–8 (citing 26 U.S.C. § 6116). Defendants further state that

15 they used this and other information to determine which individuals were not eligible for

16 the advance payments of the CARES Act tax credit. Id. at 8; Desmond Decl. ¶ 7. This

17 demonstrates that the information required to disburse EIPs to incarcerated persons is

18 already available to the IRS.

19

Next, defendants cite pending legislation that could specify that incarcerated

20 persons are not eligible for payments under the CARES Act. Opp. at 18. Defendants

21 admit that this is speculative. To add further speculation, defendants concede that there

22 are competing bills in the House and Senate, with the former not discussing incarcerated

23 persons and the latter excluding payments to incarcerated persons. This argument is

24 simply too speculative to credit; trying to predict whether legislation will pass and what it

25 will contain and then assessing the potential logistical impact on the IRS does not

26 overcome the actual harms currently being suffered by plaintiffs and does not permit the

27 IRS from modifying the clear statutory command in the CARES Act.

28

Finally, defendants cite evidence of fraud and identity theft. Defendants contend

34

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 35 of 45

United States District Court Northern District of California

1 that the impetus behind issuing the FAQ concerning incarcerated persons was the IRS’s

2 concerns regarding fraud. Desmond Decl. ¶ 5. Defendants state that in calendar year

3 2018, the IRS found 6,799 tax returns filed under the social security numbers of prisoners

4 to be false and fraudulent. Id. ¶ 6. This sample is not an isolated case and reflects

5 progress from earlier years in reducing fraudulent tax activities. Defendants also cite

6 prior TIGTA reports and press releases discussing tax refund fraud among prisoners.

7 Opp. at 7.

8

Fraud and identity theft are legitimate concerns and constitute a valid burden on

9 the government. Moreover, the CARES Act delegates authority to the Secretary to issue

10 regulations or other guidance to carry out the Act, including any measures to avoid

11 allowing multiple credits or rebates to a taxpayer. It is a short logical leap to determine

12 that Congress delegated authority to take necessary steps to avoid allowing any credit or

13 rebate to those not permitted to receive a credit or rebate in the first instance, i.e., in

14 cases of fraud and identity theft. Yet, defendants have not logically connected the

15 identified burden (fraud) and their remedy (no payments to incarcerated persons). They

16 cite slightly less than 7,000 total cases of fraud in 2018, though they submit that the

17 number of fraud cases seems to have been greater in the past. Nearly 85,000 payments

18 were issued to incarcerated persons as part of the April 10th tranche. Salahi Decl., Ex. 6

19 at 6. Presumably there would be additional payments if the court were to certify a class

20 and issue an injunction. Given the relative low number of past fraud cases compared to

21 the higher number of incarcerated persons otherwise eligible for the EIP, the burden

22 identified by defendants does not outweigh the burden on plaintiffs.

23

Significantly, when plaintiffs establish that the government’s policy violates federal

24 law, the balance of hardships and public interest tip in their favor. J.L. v. Cissna, 341 F.

25 Supp. 3d 1048, 1070 (N.D. Cal. 2018), (citing Ariz. Dream Act Coal. v. Brewer, 757 F.3d

26 1053, 1069 (9th Cir. 2014); and Valle del Sol, Inc. v. Whiting, 732 F.3d 1006, 1029 (9th

27 Cir. 2013)); see also League of Women Voters of U.S. v. Newby, 838 F.3d 1, 12 (D.C.

28 Cir. 2016) (“There is generally no public interest in the perpetuation of unlawful agency

35

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 36 of 45

United States District Court Northern District of California

1 action. To the contrary, there is a substantial public interest in having governmental

2 agencies abide by the federal laws that govern their existence and operations.” (internal

3 quotations and citations omitted)). Given plaintiffs’ strong likelihood of success on the

4 merits, this principle also points in favor of an injunction.

5

For the foregoing reasons, the court finds the balance of equities and the public

6 interest tips in plaintiffs’ favor and a preliminary injunction would be in the public interest.

7 C. Motion for Class Certification

8

Plaintiffs move to certify a class of incarcerated individuals who were incarcerated

9 at any point from March 27, 2020 to the present and who meet the requirements of the

10 CARES Act for an advance refund. Mtn. at 19. In response, defendants’ opposition does

11 not address the merits of plaintiffs’ motion for class certification and instead requests that

12 if the court does not deny the motion for preliminary injunction, that the parties be allowed

13 further briefing on this issue. Opp. at 2 n.1. Plaintiffs then filed a notice pointing out that

14 defendants’ opposition did not argue against class certification and asking the court to

15 enter an order granting the motion to certify. Dkt. 45. Defendants filed a response

16 stating that they did in fact oppose the motion and arguing that a motion for class

17 certification is premature. Dkt. 46.

18

The court notes that defendants have been on notice of plaintiffs’ motion for class

19 certification since early August. The Civil Local Rules provide that any opposition to a

20 noticed motion must be filed and served not more than 14 days after the motion was filed.

21 Civ. L.R. 7-3(a). In addition to the minimum time required by the Local Rules, the court

22 granted a two-week extension to the briefing schedule at defendants’ request and

23 stipulated to by plaintiffs. See Dkt. 29. Despite this additional time, defendants’

24 opposition does not contain any substantive argument opposing plaintiffs’ motion for

25 class certification. Simply put, the court will not countenance a practice whereby one

26 party adopts a “wait and see” approach, testing how it will prevail on the motion for

27 preliminary injunction while delaying resolution of a noticed motion for class certification.

28 Accordingly, the court proceeds to consider plaintiffs’ motion for class certification;

36

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 37 of 45

United States District Court Northern District of California

1 however, plaintiffs must meet the requirements of Rule 23 independent of any non-

2 opposition by defendants. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350

3 (2011). (“A party seeking class certification must affirmatively demonstrate his

4 compliance with the Rule—that is, he must be prepared to prove that there are in fact

5 sufficiently numerous parties, common questions of law or fact, etc.” (emphasis added)).

6

Further, in their separately filed notice, defendants contend that plaintiffs’ motion

7 for class certification is premature and the practice employed in a majority of class

8 actions is to resolve class certification after an appropriate period of discovery. Dkt. 46 at

9 2. The court is mindful of the concerns raised by defendants, but in many respects, this

10 is not a typical case. The CARES Act places an unambiguous deadline on advance

11 refund payments of December 31, 2020. The IRS has also imposed an October 15, 2020

12 deadline for non-filers to use the IRS’s portal to register and file for an EIP. Permitting

13 discovery for purposes of certifying a class followed by additional briefing on a renewed

14 class certification motion will likely moot plaintiffs’ APA claims as related to the EIP.

15

The court finds persuasive the approach taken by the district court in Saravia v.

16 Sessions, 280 F. Supp. 3d 1168 (N.D. Cal. 2017). There, the plaintiffs filed a putative

17 class action challenging the federal government’s practice of holding previously arrested

18 and released noncitizen minors who were then re-arrested in custody beyond seven days

19 while removal proceedings were pending. Id. at 1177. The plaintiffs sought a preliminary

20 injunction and class certification enjoining the practice of holding minors longer than

21 seven days without providing them a hearing to contest their confinement. Id. Because

22 of the time sensitive nature of the plaintiffs’ requested relief, the court provisionally

23 certified a class for purposes of the preliminary injunction. Id. at 1201–02.

24

A similar approach is applicable here; if plaintiffs meet the requirements under

25 Rule 23, the court will provisionally certify a class for purposes of the preliminary

26 injunction.

27 / / /

28 / / /

37

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 38 of 45

United States District Court Northern District of California

1

1. Rule 23(a)

2

a. Numerosity

3

Rule 23(a)(1) requires that a proposed class be so numerous that joinder of all

4 members is impracticable. Fed. R. Civ. P. 23(a)(1). While there is no fixed number that

5 satisfies the numerosity requirement, courts often find that a group greater than 40

6 members meets such requirement. Californians for Disability Rights, Inc. v. Cal. Dep’t of

7 Transp., 249 F.R.D. 334, 346 (N.D. Cal. 2008); Hernandez v. Cnty. of Monterey, 305

8 F.R.D. 132, 152–53 (N.D. Cal. 2015) (“A class or subclass with more than 40 members

9 ‘raises a presumption of impracticability based on numbers alone.’” (citation omitted)). A

10 court may make “common-sense assumptions and reasonable inferences” when

11 analyzing numerosity. West v. Cal. Servs. Bureau, Inc., 323 F.R.D. 295, 303 (N.D. Cal.

12 2017) (citing The Civil Rights Educ. & Enforcement Ctr. v. RLJ Lodging Trust, 2016 WL

13 314400, at *6 (N.D. Cal. Jan. 25, 2016)).

14

Plaintiffs argue that numerosity is satisfied because joinder of over 1.4 million

15 incarcerated persons as parties would be impractical. Mtn. at 20. The court agrees with

16 plaintiffs because, at the very least, the IRS initially issued EIPs to nearly 85,000

17 incarcerated persons before issuing guidance to intercept the payments, repay the EIPs,

18 or void the payment check. Salahi Decl., Ex. 6 at 6. This factor is met.

19

b. Commonality

20

Rule 23(a)(2) requires questions of law or fact common to the class. Fed. R. Civ.

21 P. 23(a)(2). Under this requirement, plaintiffs must “demonstrate that the class members

22 have suffered the same injury,” not merely violations of “the same provision of law.”

23 Dukes, 564 U.S. at 349–50. Given that, plaintiffs’ claims “must depend upon a common

24 contention” such that “determination of [their] truth or falsity will resolve an issue that is

25 central to the validity of each one of the claims in one stroke.” Id. “What matters to class

26 certification . . . is not the raising of common questions—even in droves—but rather the

27 capacity of a classwide proceeding to generate common answers apt to drive the

28 resolution of the litigation.” Id.

38

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 39 of 45

United States District Court Northern District of California

1

To that end, the Ninth Circuit has explained that, under this requirement, “plaintiffs

2 need not show that every question in the case, or even a preponderance of questions, is

3 capable of classwide resolution. So long as there is even a single common question, a

4 would-be class can satisfy the commonality requirements of Rule 23(a)(2).” Wang v.

5 Chinese Daily News, Inc., 737 F.3d 538, 544 (9th Cir. 2013). Thus, “where the

6 circumstances of each particular class member vary but retain a common core of factual

7 or legal issues with the rest of the class, commonality exists.” Evon v. Law Offices of

8 Sidney Mickell, 688 F.3d 1015, 1029 (9th Cir. 2012).

9

Plaintiffs argue that common questions include whether the CARES Act authorizes

10 defendants to withhold stimulus payments from incarcerated persons based solely on

11 their status and whether defendants’ policy of refusing to issue CARES Act payments to

12 otherwise eligible incarcerated persons is contrary to law, exceeds statutory authority, or

13 is otherwise arbitrary and capricious, among several other questions. See Mtn. at 20–21.

14

Plaintiffs meet the commonality requirement. First, plaintiffs and the class are

15 asserting the same legal claim, that defendants’ decision to withhold EIPs to incarcerated

16 persons violates the APA. Second, the facts underlying the class’s claims are both

17 straightforward and the same: some percentage of incarcerated persons are owed

18 advance refunds under the mechanism established by the CARES Act, the IRS made a

19 decision applicable to all incarcerated persons to exclude them from that payment, and

20 the incarcerated persons did not receive those payments. Third, the legal injury in all

21 cases is the same, incarcerated persons did not receive the EIPs provided for by the

22 CARES Act. Fourth, class members and plaintiffs are all challenging the same IRS policy

23 that excludes them from receiving the advance refund. Fifth, plaintiffs seek the same

24 relief, an injunction enjoining defendants from enforcing their unlawful policy.

25

In light of the foregoing, plaintiffs’ common questions of law and fact easily satisfy

26 the commonality requirement.

27

c. Typicality

28

Rule 23(a)(3) requires that the claims of the named plaintiffs be typical of those of

39

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 40 of 45

United States District Court Northern District of California

1 the proposed class. Fed. R. Civ. P. 23(a)(3). “The test for typicality ‘is whether other

2 members have the same or similar injury, whether the action is based on conduct which

3 is not unique to the named plaintiffs, and whether other class members have been injured

4 by the same course of conduct.’” Sandoval v. Cty. of Sonoma, 912 F.3d 509, 518 (9th

5 Cir. 2018) (quoting Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992)).

6

Plaintiffs contend that their claims arise from the same course of events and rely

7 on the same legal arguments as other class members. Mtn. at 21. The court agrees.

8 Both plaintiffs Scholl and Strawn were incarcerated for either the entirety or a portion of

9 the class period and did not receive advance refunds despite being otherwise eligible.

10 Scholl Decl. ¶ 2; Strawn Decl. ¶ 2. As demonstrated by the IRS’s decision to claw back

11 previously issued payments to incarcerated persons and withhold payment in May 2020,

12 the conduct in question is not unique to the named plaintiffs and other class members

13 have been injured by defendants’ course of conduct.

14

d. Adequacy

15

Rule 23(a)(4) requires that the party representatives fairly and adequately protect

16 the interests of the class. Fed. R. Civ. P. 23(a)(4). The Ninth Circuit has set forth a two-

17 part test for this requirement: “(1) do the named plaintiffs and their counsel have any

18 conflicts of interest with other class members and (2) will the named plaintiffs and their

19 counsel prosecute the action vigorously on behalf of the class?” Staton v. Boeing Co.,

20 327 F.3d 938, 957 (9th Cir. 2003).

21

Additionally, Rule 23(g) requires that a district court appoint class counsel for any

22 class that is certified and further lists the following four factors relevant to such

23 appointment: (1) the work counsel has done in identifying or investigating potential claims

24 in the action; (2) counsel’s experience in handling class actions or other complex litigation

25 and the type of claims in the litigation; (3) counsel’s knowledge of the applicable law; and

26 (4) the resources that counsel will commit to representing the class. Fed. R. Civ. P.

27 23(g). Additionally, a court may consider the proposed counsel’s professional

28 qualifications, skill, and experience, as well as such counsel’s performance in the action

40

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 41 of 45

United States District Court Northern District of California

1 itself. In re Emulex Corp. 210 F.R.D. 717, 720 (C.D. Cal. 2002) (citing In re Gen. Motors

2 Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 801 (3d Cir.1995); and

3 Sullivan v. Chase Inv., 79 F.R.D. 246, 258 (N.D. Cal. 1978)).

4

Plaintiffs assert there are no conflicts between named plaintiffs and their counsel

5 and the proposed class. Mtn. at 21. They also contend that class counsel12 has

6 significant experience prosecuting class actions. Id. at 22.

7

With regard to plaintiffs, the court finds no conflict between named plaintiffs and

8 the proposed class. They seek the same injunctive relief as class members: an order

9 enjoining defendants from enforcing an unlawful policy. Based on the filings in the case

10 to date, plaintiffs and their counsel have vigorously prosecuted this action on an

11 abbreviated timeline.

12

With regard to appointment of class counsel, the court finds plaintiffs’ counsel

13 meet the requirements of Rule 23(g). Plaintiffs’ counsel has diligently identified claims in

14 a short timespan: the CARES Act was enacted on March 27, 2020, the IRS changed its

15 policy regarding incarcerated persons in early May 2020, and this lawsuit was filed

16 August 1, 2020. Plaintiffs’ counsel has significant knowledge and experience litigating

17 cases involving civil rights, complex litigation, or both. See Declaration of Kelly Dermody,

18 Dkt. 9, ¶¶ 5–7; Declaration of Mona Tawatao, Dkt. 10, ¶¶ 4–6.

19

Thus, plaintiffs and their counsel are adequate representatives and counsel meet

20 the requirements of Rule 23(g) for appointment as class counsel.

21

2. Rule 23(b)(2)

22

Having satisfied Rule 23(a), plaintiffs may maintain a class action under Rule

23 23(b)(2) if “the party opposing the class has acted or refused to act on grounds that apply

24 generally to the class, so that final injunctive relief or corresponding declaratory relief is

25 appropriate respecting the class as a whole.” Fed. R. Civ. P. 23(b)(2). “Class

26 certification under Rule 23(b)(2) is appropriate only where the primary relief sought is

27

28

12 Proposed class counsel for the class is the law firm Lieff Cabraser Heimann & Bernstein, LLP and the civil rights firm Equal Justice Society.

41

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 42 of 45

United States District Court Northern District of California

1 declaratory or injunctive.” Ellis, 657 F.3d at 986 (quoting Zinser, 253 F.3d at 1195). The

2 “predominance” and “superiority” requirements of Rule 23(b)(3) do not apply to Rule

3 23(b)(2) classes. Instead, “[i]t is sufficient if class members complain of a pattern or

4 practice that is generally applicable to the class as a whole. Even if some class members

5 have not been injured by the challenged practice, a class may nevertheless be

6 appropriate.” Walters v. Reno, 145 F.3d 1032, 1047 (9th Cir. 1998) (citations omitted).

7

Plaintiffs assert that Rule 23(b)(2) is met in this case because defendants

8 implemented a generally applicable policy of denying CARES Act payments to

9 incarcerated persons on the basis of their status. Mtn. at 22. They further argue that it is

10 immaterial that, as a consequence of the injunctive relief, incidental monetary relief could

11 flow to the class if defendants re-determine the class’s eligibility for EIPs benefits under

12 the correct legal standard. Id.

13

The court agrees with plaintiffs that defendants’ policy is generally applicable to

14 the class as a whole. The IRS has decided that all incarcerated persons are ineligible to

15 receive the advance refund payment. While the IRS currently indicates that it will permit

16 persons incarcerated for a portion of 2020 to claim the tax credit on their 2020 tax

17 returns, no such concession has been made for the advance refunds. Rather, there is a

18 uniform policy applicable to both incarcerated and formerly incarcerated persons.

19

The court is also persuaded that, even if the proposed injunction results in

20 disbursement of monetary relief, the class may still be certified under Rule 23(b)(2). As

21 the Supreme Court has noted, “[t]he key to the (b)(2) class is ‘the indivisible nature of the

22 injunctive or declaratory remedy warranted—the notion that the conduct is such that it

23 can be enjoined or declared unlawful only as to all of the class members or as to none of

24 them.’” Dukes, 564 U.S. at 360 (citation omitted). Conversely, relief under Rule 23(b)(2)

25 is not appropriate when there is “an individualized award of monetary damages.” Id. at

26 361; see also id. at 362 (“[I]ndividualized monetary claims belong in Rule 23(b)(3).”).

27

In this case, it is significant that plaintiffs request an injunction relating to a

28 generally applicable policy, but any individual determination of monetary relief is left to

42

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 43 of 45

United States District Court Northern District of California

1 the IRS, not the court. See Wit v. United Behavioral Health, 317 F.R.D. 106, 133 (N.D.

2 Cal. 2016) (“What is of particular significance is that even if Plaintiffs prevail on their

3 request for an injunction requiring that all claims decided under the allegedly faulty

4 Guidelines be reprocessed, the Court will not be required to address individualized claims

5 for damages.”). Because this case does not involve individual determinations regarding

6 monetary damages, the procedural protections provided to a Rule 23(b)(3) class are not

7 necessary. Dukes, 564 U.S. at 362–63 (“When a class seeks an indivisible injunction

8 benefiting all its members at once, there is no reason to undertake a case-specific inquiry

9 into whether class issues predominate or whether class action is a superior method of

10 adjudicating the dispute.”). The court views plaintiffs’ injunction as only a request to

11 enjoin enforcement of an unlawful policy. Whether a taxpayer otherwise meets the

12 requirements for the EIP is left to the IRS. For that reason, this class is properly certified

13 under Rule 23(b)(2).

14

In sum, plaintiffs have met the requirements for class certification under Rule

15 23(b)(2). The court provisionally certifies a class of:

16

All United States citizens and legal permanent residents who:

17

(a) are or were incarcerated (i.e., confined in a jail,

prison, or other penal institution or correctional

18

facility pursuant to their conviction of a criminal

offense) in the United States, or have been held to

19

have violated a condition of parole or probation

imposed under federal or state law, at any time from

20

March 27, 2020 to the present;

21

(b) filed a tax return in 2018 or 2019, or were exempt

from a filing obligation because they earned an

22

income below $12,000 (or $24,400 if filing jointly) in

the respective tax year; 23

(c) were not claimed as a dependent on another

24

person’s tax return; and

25

(d) filed their taxes with a valid Social Security Number,

and, if they claimed qualifying children or filed jointly

26

with another person, those individuals also held a

valid Social Security Number. 27

Excluded from the class are estates and trusts; defendants; the

28

officers, directors, or employees of any defendant agency; and,

43

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 44 of 45

United States District Court Northern District of California

any judicial officer presiding over this action and his/her

1

immediate family and judicial staff.

2 The court further appoints Colin Scholl and Lisa Strawn as representatives of the class

3 and appoints Kelly M. Dermody of Lieff, Cabraser, Heimann & Bernstein LLP and Eva J.

4 Paterson of the Equal Justice Society as co-lead class counsel.

5

CONCLUSION

6

For the foregoing reasons, plaintiffs’ motion for preliminary injunction and motion

7 for class certification is GRANTED.

8

PRELIMINARY INJUNCTION

9

Defendants Steven Mnuchin, in his official capacity as the Secretary of the U.S.

10 Department of Treasury; Charles Rettig, in his official capacity as U.S. Commissioner of

11 Internal Revenue; the U.S. Department of the Treasury; the U.S. Internal Revenue

12 Service; and the United States of America, are hereby enjoined from withholding benefits

13 pursuant to 26 U.S.C. § 6428 from plaintiffs or any class member on the sole basis of

14 their incarcerated status. Within 30 days, defendants shall reconsider advance refund

15 payments to those who are entitled to such payment based on information available in

16 the IRS’s records (i.e., 2018 or 2019 tax returns), but from whom benefits have thus far

17 been withheld, intercepted, or returned on the sole basis of their incarcerated status.

18 Within 30 days, defendants shall reconsider any claim filed through the “non-filer” online

19 portal or otherwise that was previously denied solely on the basis of the claimant’s

20 incarcerated status. Defendants shall take all necessary steps to effectuate these

21 reconsiderations, including updates to the IRS website and communicating to federal and

22 state correctional facilities. Within 45 days, defendants shall file a declaration confirming

23 these steps have been implemented, including data regarding the number and amount of

24 benefits that have been disbursed.

25 / / /

26 / / /

27 / / /

28 / / /

44

Case 4:20-cv-05309-PJH Document 50 Filed 09/24/20 Page 45 of 45

United States District Court Northern District of California

1 The injunction will remain in effect until a resolution of this action on the merits.

2

IT IS SO ORDERED.

3 Dated: September 24, 2020

4

/s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

5

United States District Judge

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 45

 
 Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 1 of 39

United States District Court Northern District of California

1

2

3

4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6

7

COLIN SCHOLL, et al.,

8

Plaintiffs,

Case No. 20-cv-05309-PJH

9

v.

10

STEVEN MNUCHIN, et al.,

11

Defendants.

12

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT AND DENYING MOTION FOR STAY
Re: Dkt. Nos. 54, 58

13

14

Before the court are defendants Steven Mnuchin, Charles Rettig, the U.S.

15 Department of the Treasury, the U.S. Internal Revenue Service (“IRS”), and the United

16 States of America’s (collectively “defendants”) motion for stay of preliminary injunction

17 pending appeal (Dkt. 58, “Mtn.”) and plaintiffs Colin Scholl and Lisa Strawn’s (“plaintiffs”)

18 motion for summary judgment, (Dkt. 54, “MSJ”). The matters are fully briefed and

19 suitable for resolution without oral argument. Having read the parties’ papers and

20 carefully considered their arguments and the relevant legal authority, and good cause

21 appearing, the court rules as follows.

22

BACKGROUND

23

On August 1, 2020, plaintiffs filed a complaint (“Compl.”) in this class action

24 asserting three causes of action: (1) violation of the Administrative Procedure Act

25 (“APA”), 5 U.S.C. § 706(1); (2) violation of the APA, 5 U.S.C. §§ 702, 706(2); and

26 (3) violation of the CARES Act, 26 U.S.C. § 6824, and the Little Tucker Act, 28 U.S.C.

27 § 1346(a)(2). Dkt. 1. On August 4, 2020, plaintiffs filed a motion for preliminary

28 injunction, motion for class certification, and motion to appoint co-lead counsel. Dkt. 8.

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 2 of 39

United States District Court Northern District of California

1 On September 24, 2020, the court granted plaintiffs’ motions, provisionally certified a

2 class, and entered a preliminary injunction. Dkt. 50.

3

Defendants are responsible for administering economic impact payments (“EIP”)

4 to eligible individuals pursuant to the Coronavirus Aid, Relief, and Economic Security Act

5 (the “CARES Act” or the “Act”), Pub. L. No. 116-136, 134 Stat. 281 (2020), which was

6 signed into law on March 27, 2020. Plaintiffs are incarcerated and formerly incarcerated

7 individuals who did not receive payments and members of the class are all similarly

8 situated persons who are or were incarcerated, otherwise met the criteria to receive an

9 EIP under the CARES Act but did not receive an EIP. Compl. ¶¶ 4–5, 33.

10

The CARES Act, codified in part at section 6428 of the Internal Revenue Code, 26

11 U.S.C. § 6428, establishes a tax credit for eligible individuals in the amount of $1,200

12 ($2,400 if filing a joint return), plus $500 multiplied by the number of qualifying children.

13 26 U.S.C. § 6428(a).1 For purposes of the Act, an eligible individual is defined as “any

14 individual” other than (1) any nonresident alien individual, (2) any individual who is

15 allowed as a dependent deduction on another taxpayer’s return, and (3) an estate or

16 trust. § 6428(d). The EIP is an advance refund of the subsection (a) tax credit and

17 subsection (f) describes the mechanism for implementing the advance refund.

18 Paragraph (1) of subsection (f) provides that “each individual who was an eligible

19 individual for such individual’s first taxable year beginning in 20192 shall be treated as

20 having made a payment against the tax imposed by chapter 1 for such taxable year in an

21 amount equal to the advance refund amount for such taxable year.” § 6428(f)(1).

22

Paragraph (3) of subsection (f) requires the IRS to “refund or credit any

23 overpayment attributable to this section as rapidly as possible.” § 6428(f)(3).

24 Additionally, Congress provided that “[n]o refund or credit shall be made or allowed

25 under this subsection after December 31, 2020.” Id. The CARES Act also has a

26 reconciliation

27

1 A more complete description of the Act can be found in the court’s prior order. Dkt. 50 at 2–4.

28

2 The Act permits the IRS to use other information besides a taxpayer’s 2019 tax returns including 2018 returns. See § 6428(f)(5).

2

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 3 of 39

United States District Court Northern District of California

1 provision between the advance refund and the tax credit such that if a taxpayer receives

2 an advance refund of the tax credit then the amount of the credit is reduced by the

3 aggregate amount of the refund. § 6428(e).

4

Three days after the President signed the CARES Act, the IRS issued a news

5 release explaining that the agency would calculate and automatically issue an EIP to

6 eligible individuals. Declaration of Yaman Salahi (“Salahi Decl.”), Dkt. 55, Ex. 1 at 1.

7 Though not required to do so by the Act, the IRS established an online portal for

8 individuals who are not typically required to file federal income tax returns (e.g., because

9 an individual’s income is less than $12,200), which allows those non-filers to enter their

10 information to receive an EIP. Id., Ex. 2. Individuals who use the non-filer online portal

11 have until October 15, 20203 to register in order to receive the EIP by the December 31,

12 2020 deadline imposed by the CARES Act. Id., Ex. 3.

13

On May 6, 2020, the IRS published responses to “Frequently Asked Questions”

14 (“FAQ”) on the IRS.gov website. Id., Ex. 4. Question 15 asked “Does someone who is

15 incarcerated qualify for the Payment [i.e., an EIP]?” The IRS responded:

16

A15. No. A Payment made to someone who is incarcerated

should be returned to the IRS by following the instructions

17

about repayments. A person is incarcerated if he or she is

described in one or more of clauses (i) through (v) of Section

18

202(x)(1)(A) of the Social Security Act (42 U.S.C. § 402

(x)(1)(A)(i) through (v)). For a Payment made with respect to a

19

joint return where only one spouse is incarcerated, you only

need to return the portion of the Payment made on account of

20

the incarcerated spouse. This amount will be $1,200 unless

adjusted gross income exceeded $150,000.

21

22 Id. On June 18, 2020, the IRS updated its internal procedures manual to reflect the

23 policy stated in response to the FAQ. Id., Ex. 5.

24

On June 30, 2020, the Treasury Inspector General for Tax Administration

25 (“TIGTA”) issued a report on the interim results of the 2020 filing season, including results

26

27 3 The IRS later extended this deadline to November 21, 2020 with respect to the online

28

portal, (Dkt. 67 at 6) and this court extended the postmark deadline to October 30, 2020 with respect to mailed paper returns, (Dkt. 69 at 7–8).

3

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 4 of 39

United States District Court Northern District of California

1 of an audit on the IRS’s issuance of the EIPs. Id., Ex. 6. The TIGTA noted that on April

2 10, 2020 the IRS issued 81.4 million CARES Act payments and some of those payments

3 were sent to incarcerated individuals and deceased individuals. Id. at 4.4 At the time, the

4 TIGTA notified IRS management of its concern regarding the issuance of such payments

5 to incarcerated individuals. The report then stated “IRS management noted that

6 payments to these populations of individuals were allowed because the CARES Act does

7 not prohibit them from receiving a payment. However, the IRS subsequently changed its

8 position, noting that individuals who are prisoners or deceased are not entitled to an EIP.”

9 Id. at 5. The IRS provided taxpayer identification numbers of incarcerated individuals to

10 the Bureau of Fiscal Service5 (“BFS”) and requested that BFS remove those individuals

11 from subsequent payments issued on May 1, 2020 and May 8, 2020. Id. There were no

12 payments to incarcerated individuals in these later tranches.

13

TIGTA calculated that the April 10th disbursement sent 84,861 payments totaling

14 approximately $100 million to incarcerated individuals. Id. at 6, fig. 3. In response to

15 these already issued payments, the IRS issued guidance, as reflected in the FAQ, that

16 individuals who received a direct deposit payment in error should repay the advance

17 refund by submitting a personal check or money order to the IRS. Id. at 6. Individuals

18 who received a paper EIP check were instructed to return the voided check to the IRS.

19 Id. Further, plaintiffs cite news stories reporting that the IRS took proactive steps to

20 intercept and retrieve the April 10th payments such as directing state corrections

21 departments to intercept payments made to incarcerated individuals and return them to

22 the IRS. Id., Ex. 7.

23

As part of the order granting plaintiffs’ motion for preliminary injunction, the court

24 enjoined defendants from withholding benefits pursuant to the CARES Act from plaintiffs

25 or any class member on the sole basis of their incarcerated status. Dkt. 50 at 44. The

26

27

4 Pin citations to the TIGTA’s report refer to the report’s original page numbers and not the electronically stamped ECF number on the exhibit.

28

5 The BFS is an agency of the Department of the Treasury that issues payments, including the EIPs, on behalf of the IRS. Salahi Decl., Ex. 6 at 3 n.5.

4

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 5 of 39

United States District Court Northern District of California

1 court ordered defendants to reconsider payments to those who would otherwise be

2 entitled to an EIP based on their 2018 or 2019 tax returns but did not receive the

3 payment on the sole basis of their incarcerated status. Id. The court also ordered

4 defendants to reconsider any claim filed through the online non-filer tool, described

5 below, for those claims that were previously denied on the sole basis of the claimant’s

6 incarcerated status. Id. The court set a thirty-day deadline for each reconsideration. Id.

7

On October 1, 2020, defendants filed an appeal of the court’s preliminary

8 injunction order and also filed the present motion for stay of the preliminary injunction

9 pending the appeal. Plaintiffs filed a motion for summary judgment on their two APA

10 claims. The court consolidated briefing on these two motions. Dkt. 62.

11

DISCUSSION

12 A. Legal Standard

13

1. Motion for Stay

14

Granting a stay pending appeal is “an exercise of judicial discretion.” Virginian Ry.

15 Co. v. United States, 272 U.S. 658, 672 (1926). The party requesting a stay bears the

16 burden of convincing a court to exercise that discretion. Nken v. Holder, 556 U.S. 418,

17 433–34 (2009). In deciding whether to grant a stay, the court must consider “(1) whether

18 the stay applicant has made a strong showing that he is likely to succeed on the merits;

19 (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of

20 the stay will substantially injure the other parties interested in the proceeding; and (4)

21 where the public interest lies.” Id. at 426 (quotation omitted). The first two stay factors

22 are “the most critical.” Lair v. Bullock, 697 F.3d 1200, 1204 (9th Cir. 2012). “[T]he last

23 two are reached only ‘[o]nce an applicant satisfies the first two factors.” Al Otro Lado v.

24 Wolf, 952 F.3d 999, 1007 (9th Cir. 2020) (second alteration in original) (quoting Nken,

25 556 U.S. at 434–35).

26

“Nken instructed ‘that if the petition has not made a certain threshold showing

27 regarding irreparable harm . . . then a stay may not issue, regardless of the petitioner’s

28 proof regarding the other stay factors.’” Doe #1 v. Trump, 957 F.3d 1050, 1058 (9th Cir.

5

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 6 of 39

United States District Court Northern District of California

1 2020) (quoting Leiva-Perez v. Holder, 640 F.3d 962, 965 (9th Cir. 2011) (per curiam); and

2 citing Nken, 556 U.S. at 433–34). “In the context of a stay request, ‘simply showing some

3 possibility of irreparable injury’ is insufficient. Id. at 1058–59 (quoting Nken, 556 U.S. at

4 434). “Rather, at this juncture, the government has the burden of showing that

5 irreparable injury is likely to occur during the period before the appeal is decided.” Id. at

6 1059 (quoting Leiva-Perez, 640 F.3d at 968).

7

2. Summary Judgment

8

The APA limits the scope of judicial review to the administrative record. 5 U.S.C.

9 § 706 (directing the court to “review the whole record or those parts of it cited by a

10 party”). The scope of review is normally limited to “the administrative record in existence

11 at the time of the [agency] decision and [not some new] record that is made initially in the

12 reviewing court.” Lands Council v. Powell, 395 F.3d 1019, 1030 (9th Cir. 2005) (citation

13 omitted).

14

A motion for summary judgment may be used to seek judicial review of agency

15 administrative decisions within the limitations of the APA. Nw. Motorcycle Ass’n v. U.S.

16 Dep’t of Agric., 18 F.3d 1468, 1471–72 (9th Cir. 1994). Generally, the court should grant

17 a motion for summary judgment if “there is no genuine dispute as to any material fact and

18 the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving

19 party bears the initial burden of informing the court of the basis for the motion and

20 identifying the portions of the pleadings, depositions, answers to interrogatories,

21 admissions, or affidavits that demonstrate the absence of a triable issue of material fact.

22 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

23

“[T]he function of the district court is to determine whether or not as a matter of law

24 the evidence in the administrative record permitted the agency to make the decision it

25 did.” City & Cty. of San Francisco v. United States, 130 F.3d 873, 877 (9th Cir. 1997)

26 (alteration in original) (quoting Occidental Eng’g Co. v. INS, 753 F.2d 766, 769 (9th Cir.

27 1985)). Thus, the usual standard set forth in Rule 56(c) does not apply. See San

28 Joaquin River Grp. Auth. v. Nat’l Marine Fisheries Serv., 819 F. Supp. 2d 1077, 1083–84

6

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 7 of 39

United States District Court Northern District of California

1 (E.D. Cal. 2011) (citing Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89 (D.D.C. 2006));

2 see also Nw. Motorcycle Assoc., 18 F.3d at 1472 (noting that for cases “involv[ing] review

3 of a final agency determination under the [APA], . . . resolution of this matter does not

4 require fact finding on behalf of this court”). Nevertheless, “summary judgment is an

5 appropriate mechanism for deciding the legal question of whether the agency could

6 reasonably have found the facts as it did.” Occidental, 753 F.2d at 770.

7

Under the APA, a court may set aside an agency’s final action if the action was

8 “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5

9 U.S.C. § 706(2)(A). This is a “highly deferential” standard under which there is a

10 presumption that the agency’s action is valid “if a reasonable basis exists for its decision.”

11 Kern Cty. Farm Bureau v. Allen, 450 F.3d 1072, 1076 (9th Cir. 2006). A reviewing court

12 may also “hold unlawful and set aside agency action, findings, and conclusions” that are

13 “without observance of procedure required by law,” or “in excess of statutory jurisdiction,

14 authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(C), (D). Unlike

15 substantive challenges, “review of an agency’s procedural compliance is exacting, yet

16 limited.” Kern Cty. Farm Bureau, 450 F.3d at 1076.

17

“Summary judgment thus serves as the mechanism for deciding, as a matter of

18 law, whether the agency action is supported by the administrative record and otherwise

19 consistent with the APA standard of review.” Gill v. Dep't of Justice, 246 F. Supp. 3d

20 1264, 1268 (N.D. Cal. 2017) (quoting Stuttering Found. of Am. v. Springer, 498 F. Supp.

21 2d 203, 207 (D.D.C. 2007)).

22 B. Subject Matter Jurisdiction

23

In both their motion for stay and their opposition to the motion for summary

24 judgment, defendants advance the same arguments with regard to standing, ripeness,

25 and sovereign immunity. Because these contentions go to the court’s subject matter

26 jurisdiction, the court addresses these arguments together.

27

With respect to standing, federal courts may adjudicate only actual “Cases” and

28 “Controversies,” U.S. Const. art. III, § 2, and may not render advisory opinions as to what

7

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 8 of 39

United States District Court Northern District of California

1 the law ought to be or affecting a dispute that has not yet arisen. Aetna Life Ins. Co. of

2 Hartford, Conn. v. Haworth, 300 U.S. 227, 240 (1937). Article III’s “standing”

3 requirements limit the court’s subject matter jurisdiction. See Cetacean Cmty. v. Bush,

4 386 F.3d 1169, 1174 (9th Cir. 2004). The burden of establishing standing rests on the

5 party asserting the claim. Renne v. Geary, 501 U.S. 312, 316 (1991).

6

The “irreducible constitutional minimum of standing contains three elements.”

7 Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). “In order to establish Article III

8 standing, a plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to

9 the challenged conduct of the defendant, and (3) that is likely to be redressed by a

10 favorable judicial decision.” California v. Trump, 963 F.3d 926, 935 (9th Cir. 2020) (citing

11 Lujan, 504 U.S. at 560–61). “To establish injury in fact, a plaintiff must show that he or

12 she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and

13 particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Spokeo Inc. v.

14 Robins, 136 S. Ct. 1540, 1548 (2016) (quoting Lujan, 504 U.S. at 560).

15

Next, “[r]ipeness is an Article III doctrine designed to ensure that courts adjudicate

16 live cases or controversies and do not ‘issue advisory opinions [or] declare rights in

17 hypothetical cases.’ A proper ripeness inquiry contains a constitutional and a prudential

18 component.” Bishop Paiute Tribe v. Inyo Cty., 863 F.3d 1144, 1153 (9th Cir. 2017)

19 (citations omitted). “For a case to be ripe, it must present issues that are definite and

20 concrete, not hypothetical or abstract. Constitutional ripeness is often treated under the

21 rubric of standing because ripeness coincides squarely with standing’s injury in fact

22 prong.” Id. (internal quotation marks and citations omitted); Thomas v. Anchorage Equal

23 Rights Comm’n, 220 F.3d 1134, 1138–39 (9th Cir. 2000) (en banc). Allegations that a

24 “threat” to a “concrete interest is actual and imminent” are sufficient to allege “an injury in

25 fact that meets the requirements of constitutional ripeness.” Bishop Paiute Tribe, 863

26 F.3d at 1154. Therefore, if plaintiffs satisfy the Article III standing requirements under

27 Lujan v. Defenders of Wildlife, the action is ripe.

28

“In evaluating the prudential aspects of ripeness, our analysis is guided by two

8

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 9 of 39

United States District Court Northern District of California

1 overarching considerations: ‘the fitness of the issues for judicial decision and the

2 hardship to the parties of withholding court consideration.’” Thomas, 220 F.3d at 1141.

3 When the question presented “is ‘a purely legal one’” that “constitutes ‘final agency

4 action’ within the meaning of § 10 of the APA,” that suggests the issue is fit for judicial

5 decision. Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 812 (2003). However,

6 an issue may not be ripe for review if “further factual development would ‘significantly

7 advance our ability to deal with the legal issues presented.’” Id.

8

1. Article III Standing and Ripeness

9

In both their stay motion and opposition to plaintiffs’ motion for summary judgment,

10 defendants explain at length why the court’s analysis of title 26 U.S.C. § 6428 was in

11 error and incarcerated individuals are not entitled to an advance refund. See Mtn. at 3–7;

12 Dkt. 70 at 8–11. From that premise, defendants argue that if their interpretation of

13 section 6428 is correct, so too are their arguments regarding ripeness and standing. Mtn.

14 at 7. In other words, if plaintiffs’ interpretation of the CARES Act is correct, then standing

15 would exist. If, however, defendants’ interpretation of the CARES Act is correct, then

16 standing would not exist because if no advance refund is presently owed, then any harm

17 was not actual or imminent. Id.

18

Defendants cite cases for the proposition that where a claim of injury arises out of

19 a right that one party contends is nonexistent, then if the claim is meritorious, standing

20 will exist; if not, “standing not only fails but also ceases to be relevant.” Mtn. at 7 (quoting

21 ACLU v. FCC, 523 F.2d 1344, 1348 (9th Cir. 1975)); Dkt. 70 at 13. Similarly, defendants

22 assert that if the ultimate entitlement to a tax benefit created by section 6428 is a tax

23 credit (as opposed to an advance refund of the credit), then plaintiffs’ claims are not ripe

24 until they have attempted to claim the credit on their 2020 tax returns, been denied,

25 exhausted administrative requirements, and filed a refund claim under 26 U.S.C. § 7422.

26 Mtn. at 7; Dkt. 70 at 11–12.

27

In their opposition to the motion for stay, plaintiffs respond by arguing that the

28 court correctly applied section 6428 and the court has already rejected defendants’

9

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 10 of 39

United States District Court Northern District of California

1 arguments. Dkt. 66 at 7. Like defendants, plaintiffs explain at length why section 6428

2 supports their position. See id. at 7–10. In their reply in support of the motion for

3 summary judgment, plaintiffs argue that standing is a threshold issue and is distinct from

4 the analysis into the merits of their claims. Dkt. 73 at 6. Plaintiffs also argue that

5 defendants’ actions impose a barrier to obtaining CARES Act benefits that others do not

6 face and the need to hurdle special obstacles is itself a detriment that confers standing.

7 Id.

8

The court begins with the observation that both parties’ detailed arguments

9 concerning the correct interpretation of section 6428 goes to the merits of plaintiffs’ APA

10 claims. For that reason, the court addresses those arguments with regard to plaintiffs’

11 motion for summary judgment. Standing and ripeness, however, are a different matter.

12

Defendants’ approach to standing and ripeness relies on the assumption that their

13 interpretation of section 6428 is correct. See Mtn. at 7 (“[W]here a claim of injury arises

14 out of a right that one party contends is nonexistent, then if the claim is meritorious,

15 standing will not exist; if not, ‘standing not only fails but also ceases to be relevant.’”

16 (citation omitted)). This argument is in error. “The jurisdictional question of standing

17 precedes, and does not require, analysis of the merits.” Equity Lifestyle Properties, Inc.

18 v. Cty. of San Luis Obispo, 548 F.3d 1184, 1189 n.10 (9th Cir. 2008). In Warth v. Seldin,

19 422 U.S. 490, 500 (1975), the Supreme Court noted that “standing in no way depends on

20 the merits of the plaintiff’s contention that particular conduct is illegal,” but “often turns on

21 the nature and source of the claim asserted.” See also Whitmore v. Arkansas, 495 U.S.

22 149, 155 (1990) (“Our threshold inquiry into standing ‘in no way depends on the merits of

23 the [petitioner’s] contention that particular conduct is illegal,’ and we thus put aside for

24 now [petitioner’s] Eighth Amendment challenge and consider whether he has established

25 the existence of a ‘case or controversy.’” (quoting Warth, 422 U.S. at 500)).

26

In East Bay Sanctuary Covenant v. Trump, 950 F.3d 1242 (9th Cir. 2020), the

27 Ninth Circuit addressed an argument similar to the one advanced by defendants here.

28 There, the federal government challenged whether legal aid organizations had standing

10

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 11 of 39

United States District Court Northern District of California

1 and argued that the plaintiffs had “no legally protected interest” in how their organizations

2 were structured or how a regulation applied to third parties. Id. at 1267. In rejecting that

3 argument, the court stated:

4

An injury-in-fact is “an invasion of a legally protected interest,”

but this means an interest that is only concrete and

5

particularized and actual or imminent—not an interest

protected by statute. This distinction prevents Article III

6

standing requirements from collapsing into the merits of a

plaintiff’s claim; “a petitioner’s ‘legally protected interest’ need

7

not be a statutorily created interest,” and a plaintiff can have

standing despite losing on the merits.

8

9 Id. (quoting Ass’n of Pub. Agency Customers v. Bonneville Power Admin., 733 F.3d 939,

10 950 (9th Cir. 2013); and citing Lujan, 504 U.S. at 560; In re Special Grand Jury 89-2, 450

11 F.3d 1159, 1172 (10th Cir. 2006)). Injury in fact is a “‘judicially cognizable interest’—

12 implying that ‘an interest can support standing even if it is not protected by law . . . so

13 long as it is the sort of interest that courts think to be of sufficient moment to justify

14 judicial intervention.’” Id. (alteration in original) (quoting In re Special Grand Jury 89-2,

15 450 F.3d at 1172).

16

While plaintiffs’ legally protected interest need not be a statutorily created interest,

17 it must be judicially cognizable. “[E]conomic injury is generally a legally protected

18 interest.” Ass’n of Pub. Agency Customers, 733 F.3d at 951 (quoting Cent. Ariz. Water

19 Conservation Dist. v. U.S. EPA, 990 F.2d 1531, 1537 (9th Cir. 1993)). The court’s prior

20 order determined that defendants’ failure to disburse an advance refund to plaintiffs was

21 an economic injury and plaintiffs’ injury was actual and imminent because defendants

22 had already denied them payments. Dkt. 50 at 10. Significantly, defendants have

23 already issued over 85,000 advance refund payments to incarcerated individuals that

24 they intercepted or required recipients to repay or void. As the TIGTA report states, the

25 IRS is “relying on [incarcerated] individuals to voluntarily return” the advance refund

26 payments initially sent to them. Salahi Decl., Ex. 6 at 6. Named plaintiffs have

27 sufficiently established through declarations that they are otherwise eligible for an EIP but

28 have not received such a payment. See Dkt. 74-2. These facts easily meet the injury in 11

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 12 of 39

United States District Court Northern District of California

1 fact requirement.

2

The cases cited by defendants can best be characterized as opinions where the

3 court addressed the merits in order to determine standing or determined whether any

4 legally cognizable right existed.6 For example, in American Civil Liberties Union v.

5 F.C.C., 523 F.2d at 1347, the Ninth Circuit noted that unlike situations where the injury

6 was “so palpable as to be subject to judicial notice, we here are confronted with

7 circumstances in which the truth of the allegation of the injury in fact can only be

8 determined by examining the merits of the asserted claim.” Id. at 1348. The court then

9 proceeded to examine the merits, stating “[i]f ACLU’s claim is meritorious, standing

10 exists; if not, standing not only fails but also ceases to be relevant.” Id. It is not clear,

11 and defendants have not explained, how this approach is reconcilable with cases like

12 East Bay Sanctuary Covenant.

13

In some cases, the court’s inquiry turned on whether a judicially cognizable right

14 existed. Thus, in Arjay Associates, Inc. v. Bush, 891 F.2d 894, 896–98 (Fed. Cir. 1989),

15 the court first determined that the appellants had no right to continued importation of a

16 product excluded from importation into the United States by Congress. The Federal

17 Circuit then held that because “appellants have no right to conduct foreign commerce in

18 products excluded by Congress, they have in this case no right capable of judicial

19 enforcement and have thus suffered no injury capable of judicial redress.” Id. at 898

20 (citations omitted). This is true of the Tenth Circuit’s approach in Utah v. Babbitt, where

21 the court

22

first look[ed] to the relevant provisions of the [Federal Land

Policy and Management Act] to determine whether Plaintiffs

23

have a right to participate in the inventory process. If we

conclude that Plaintiffs do not have such a right, then Plaintiffs’

24

25 6 More recent opinions have acknowledged that some prior opinions were not necessarily

26

clear as to the standing analysis. For example, the D.C. Circuit has noted that in some instances the court has “not always been so clear” on not deciding the merits of a

27

plaintiff’s claim. Parker v. District of Columbia, 478 F.3d 370, 377 (D.C. Cir. 2007), aff’d sub nom. District of Columbia v. Heller, 554 U.S. 570 (2008); see also Ass’n of Pub.

28

Agency Customers, 733 F.3d at 951 n.23 (“The exact requirements for a ‘legally protected interest’ are far from clear.” (citations omitted)).

12

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 13 of 39

United States District Court Northern District of California

claimed injury based on the denial of this right is without merit

1

and they consequently lack standing to challenge the 1996

inventory on these grounds. 2

137 F.3d 1193, 1207 (10th Cir. 1998) (citing Claybrook v. Slater, 111 F.3d 904, 907 (D.C.

3

Cir. 1997); Arjay Associates, 891 F.2d at 898).7

4

Here, these cases are neither controlling nor persuasive because plaintiffs do not

5

need to demonstrate that they are correct on the merits of their interpretation of section

6

6428. See, e.g., E. Bay Sanctuary Covenant, 950 F.3d at 1267–68 (“Whether [plaintiffs]

7

have a sufficient statutory or otherwise legal basis for their claims is irrelevant at this

8

threshold stage.”); Parker, 478 F.3d at 377 (“The Supreme Court has made clear that

9

when considering whether a plaintiff has Article III standing, a federal court must assume

10

arguendo the merits of his or her legal claim.”). Further, they have established a legally

11

cognizable right in the payments that defendants issued and then either intercepted or

12

required to be repaid.

13

Thus, plaintiffs have sufficiently established standing and defendants are not likely

14

to prevail on this issue. For the same reason, defendants’ argument regarding

15

constitutional ripeness also fails.

16

2. Prudential Ripeness

17

In their opposition to plaintiffs’ motion for summary judgment, defendants argue

18

that plaintiffs’ claims fail the prudential ripeness standard. According to defendants, the

19

FAQ in question is not the type of agency action ripe for judicial review because the

20

CARES Act does not create a right to the advance refund and the FAQ only addressed

21

the advance refund, not the tax credit. Dkt. 70 at 12. Next, defendants assert that the

22

FAQ is not an administrative decision that has been formalized because no regulation

23

24

25

7 In Parker, 478 F.3d at 377, the D.C. Circuit noted an obvious tension in Claybrook: “[a]lthough we recognized in [Claybrook] that it was not necessary for a plaintiff to

26

demonstrate that he or she would prevail on the merits in order to have Article III standing, the rest of our discussion seems somewhat in tension with that proposition.”

27

The Parker court ultimately distinguished Claybrook on the ground that the opinion “was actually based on a separate jurisdictional ground—reviewability under the [APA]—and

28

federal courts may choose any ground to deny jurisdiction . . . .” Id. at 378 (citation omitted).

13

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 14 of 39

United States District Court Northern District of California

1 has been issued, nor has the FAQ undergone formal or informal rulemaking. Id. Finally,

2 the Tax Code already provides for a litigation remedy if an individual disagrees with a

3 final determination of eligibility for a CARES Act credit, providing support for defendants’

4 position that the claims are unripe. Id. at 12–13.

5

In response, plaintiffs contend that their claims are prudentially ripe because the

6 legal issues are fit for review as demonstrated by the Desmond Declaration, Dkt. 44-1,

7 ¶ 7, which confirmed that plaintiffs and class members were deemed not to qualify for

8 advance payments. Dkt. 73 at 7. Next, according to plaintiffs, withholding adjudication

9 would cause hardship on them because they are presently harmed by the decision not to

10 issue advance refunds to them. Id.

11

The court notes that defendants’ argument with regard to prudential ripeness is

12 largely a reprise of their argument advanced in opposition to the motion for preliminary

13 injunction. Further, the prudential ripeness analysis parallels the inquiry conducted by

14 the court with respect to other aspects of this order. As discussed herein, the court finds

15 that the IRS’s decision regarding disbursement of EIPs to incarcerated individuals is a

16 final agency action. The court reaffirms its finding that there is substantial hardship to

17 plaintiffs if the court were to withhold a decision. As the Supreme Court stated in

18 National Park Hospitality Association, 538 U.S. at 808, “a regulation is not ordinarily

19 considered the type of agency action ‘ripe’ for judicial review under the APA until the

20 scope of the controversy has been reduced to more manageable proportions, and its

21 factual components fleshed out, by some concrete action applying the regulation to the

22 claimant’s situation in a fashion that harms or threatens to harm him.” While the action in

23 question is not a regulation, plaintiffs have clearly demonstrated that the IRS has already

24 taken concrete action applying their determination to incarcerated individuals.

25

Accordingly, plaintiffs’ claims are prudentially ripe for judicial determination.

26

3. Sovereign Immunity

27

“Absent a waiver, sovereign immunity shields the Federal Government and its

28 agencies from suit.” FDIC v. Meyer, 510 U.S. 471, 475 (1994). This immunity also

14

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 15 of 39

United States District Court Northern District of California

1 extends to federal officers sued in their official capacity. See Dugan v. Rank, 372 U.S.

2 609, 620 (1963); Aminoil U.S.A., Inc. v. Cal. State Water Res. Control Bd., 674 F.2d

3 1227, 1233 (9th Cir.1982). A “waiver of sovereign immunity must be unequivocally

4 expressed in statutory text,” and be “clearly evident from the language of the statute.”

5 FAA v. Cooper, 566 U.S. 284, 290 (2012) (internal quotation marks omitted).

6

“[T]he Administrative Procedure Act provides a broad waiver of sovereign

7 immunity so long as certain conditions are met.” S. Delta Water Agency v. United States,

8 767 F.2d 531, 535 (9th Cir. 1985). Section 702 of the APA waives sovereign immunity;

9 however, the Ninth Circuit has held that claims brought pursuant to the APA must also

10 satisfy § 704’s provisions. Navajo Nation v. Dep’t of the Interior, 876 F.3d 1144, 1170

11 (9th Cir. 2017).

12

In its prior order, the court determined that because the IRS’s action was a final

13 agency action and plaintiffs had no adequate alternative to APA review, Congress waived

14 sovereign immunity, under title 5 U.S.C. § 702, such that plaintiffs could proceed with

15 their APA claims. Dkt. 50 at 20.

16

Defendants assert that they are likely to prevail on their sovereign immunity

17 argument because there has been no final agency action and plaintiffs already have an

18 adequate remedy provided by statute. Mtn. at 8; Dkt. 70 at 14.

19

a. Final Agency Action

20

There are two conditions for an agency action to be final under the APA: “First, the

21 action must mark the consummation of the agency’s decision-making process—it must

22 not be of a merely tentative or interlocutory nature. And second, the action must be one

23 by which rights or obligations have been determined, or from which legal consequences

24 will flow.” U.S. Army Corps of Eng’rs v. Hawkes Co., 136 S. Ct. 1807, 1813 (2016)

25 (quoting Bennett v. Spear, 520 U.S. 154, 177–78 (1997)); see also Or. Nat. Desert Ass’n

26 v. U.S. Forest Serv., 465 F.3d 977, 982 (9th Cir. 2006) (“[T]he core question is whether

27 the agency has completed its decisionmaking process, and whether the result of that

28 process is one that will directly affect the parties.” (alteration in original) (citation

15

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 16 of 39

United States District Court Northern District of California

1 omitted)).

2

Assuming that their interpretation of the statute is correct, defendants argue that

3 because the statute did not require the IRS to issue advance refunds, the statute did not

4 necessitate reaching a final decision with respect to issuance of advance refunds to

5 incarcerated individuals. Mtn. at 8; Dkt. 70 at 15. In their opposition to plaintiffs’ motion

6 for summary judgment, defendants pick up this argument, contending that the IRS’s

7 policy is not one by which rights or obligations have been determined or from which legal

8 consequences will flow. Dkt. 70 at 15. According to defendants, the IRS’s decision

9 denying issuance of advance refunds to incarcerated individuals is akin to the denial of

10 interim relief that is not a final agency action. Id. Finally, defendants assert that the facts

11 cited by plaintiffs indicate that the IRS’s policy is not the consummation of a decision-

12 making process, but rather a response to a rapidly developing situation that has

13 continued to evolve in the months following enactment of the CARES Act. Id. at 14–15.

14

Plaintiffs argue that, despite a rapidly developing situation, defendants do not

15 suggest that they are still considering whether to issue advance refunds. Dkt. 73 at 7–8.

16 They further contend that defendants have not made an interim decision, rather the

17 decision is final. Id. at 8. Finally, plaintiffs cite the court’s prior order to rebut defendants’

18 argument that denial of the EIPs has no legal consequences or does not affect plaintiffs’

19 rights. Id. at 9.

20

First, several facts indicate that the IRS’s decision-making process was final and

21 not interlocutory or tentative. In the preliminary injunction order, the court determined

22 that the action was final because the FAQ8 took the unequivocal position that

23 incarcerated individuals were ineligible to receive EIPs, defendants submitted a

24 declaration that did not indicate any change to the agency’s position was forthcoming, the

25

26 8 Defendants argue that the FAQ is not a final agency action because no regulation has

27

been issued and the FAQ has not undergone formal or informal rulemaking. Dkt. 70 at 12. Yet, “given the breadth of the definition of agency action, there will be many final

28

agency actions that do not take the form of rules.” S.F. Herring Ass’n, 946 F.3d at 579 (citing 5 U.S.C. § 551(13); Or. Nat. Desert Ass’n, 465 F.3d at 987).

16

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 17 of 39

United States District Court Northern District of California

1 IRS changed its internal manual, and the timing of the CARES Act made further agency

2 determination unlikely. Dkt. 50 at 15–16.

3

Defendants do not contest these facts, but rather characterize them as a response

4 to a rapidly developing situation that has continued to evolve in the months following

5 enactment of the CARES Act. While this is an accurate description of the initial roll-out of

6 the CARES Act, once the IRS changed its mind and determined that incarcerated

7 individuals are ineligible for EIPs in early May 2020, the agency has been consistent in

8 that interpretation and has shown no indication whether publicly or in this litigation that it

9 intends to further change its position. For that reason, this case is similar to San

10 Francisco Herring Association v. Department of the Interior, 946 F.3d 564, 575 (9th Cir.

11 2019), where the Ninth Circuit determined an agency’s decision to be final where the

12 agency “repeatedly declared its authority . . . in formal notices, refused to change its

13 position when pressed, and then enforced its fishing ban against individual

14 fishermen . . . .”

15

Second, as the court determined in its prior order and reaffirms in this order, the

16 CARES Act requires the IRS to issue EIPs to eligible individuals who meet the criteria

17 established by Congress. Accordingly, the decision to deny those payments to a specific

18 segment of the population is one where a right has been determined.

19

Accordingly, the court finds that the IRS’s determination that incarcerated

20 individuals are ineligible for an EIP is a final agency action.

21

b. Adequate Alternative Remedy

22

“Even if final, an agency action is reviewable under the APA only if there are no

23 adequate alternatives to APA review in court.” Hawkes, 136 S. Ct. at 1815. “Congress

24 did not intend the general grant of review in the APA to duplicate existing procedures for

25 review of agency action.” Bowen v. Massachusetts, 487 U.S. 879, 903 (1988). However,

26 “[t]he legislative material elucidating [the APA] manifests a congressional intention that it

27 cover a broad spectrum of administrative actions, and this Court has echoed that theme

28 by noting that the [APA’s] ‘generous review provisions’ must be given a ‘hospitable’

17

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 18 of 39

United States District Court Northern District of California

1 interpretation.” Id. at 904 (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967),

2 abrogated on other grounds as recognized in Califano v. Sanders, 430 U.S. 99, 105

3 (1977)).

4

Defendants contend that because the Act does not require the IRS to have issued

5 advance refund payments to plaintiffs, but instead contemplates that ultimately eligibility

6 under the CARES Act will be determined at a later date, a refund action under title 26

7 U.S.C. § 7422 is an adequate remedy. Dkt. 70 at 15–16. Because plaintiffs may bring a

8 refund claim if they are ultimately denied the CARES Act credit, their claims do not fall

9 within the APA’s immunity waiver. Id. at 16. In response, plaintiffs urge the court to

10 affirm its earlier holding, arguing that defendants press the same argument that the court

11 has already rejected. Dkt. 73 at 9.

12

Defendants’ argument fails for two independent reasons. First, as the court

13 determined in its preliminary injunction order, title 26 U.S.C. § 7422(a) does not apply to

14 plaintiffs’ claims. Second, even if it does apply, the statute is not an adequate alternative

15 remedy.

16

Generally, section 7422(a) requires a taxpayer to file a claim with the IRS before

17 bringing suit for the recovery of any internal revenue tax.9 See United States v.

18 Clintwood Elkhorn Min. Co., 553 U.S. 1, 4 (2008) (“A taxpayer seeking a refund of taxes

19 erroneously or unlawfully assessed or collected may bring an action against the

20 Government either in United States district court or in the United States Court of Federal

21 Claims.” (citations omitted)). In its prior order, the court reasoned that plaintiffs’ claims

22 fell outside section 7422 for two reasons. First, plaintiffs did not allege that a tax was

23 erroneously or illegally assessed or collected, a penalty was collected without authority,

24 or any sum is alleged to be excessive. Dkt. 50 at 18–19. Second, plaintiffs sought

25

26 9 In relevant part, title 26 U.S.C. § 7422(a) states that: “[n]o suit . . . shall be maintained in

27

any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected

28

without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund . . . has been duly filed with [the IRS].”

18

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 19 of 39

United States District Court Northern District of California

1 injunctive and declaratory relief and such equitable relief fell outside the relief permitted

2 by the statute. Id. at 19 (citing King v. Burwell, 759 F.3d 358, 366 (4th Cir. 2014), aff’d,

3 576 U.S. 473 (2015); Cohen v. United States, 650 F.3d 717, 732 (D.C. Cir. 2011) (en

4 banc)).

5

Defendants argue that despite the equitable nature of plaintiffs’ relief, the core of

6 their suit is a request to claim a monetary tax benefit that Congress made possible by

7 treating eligible individuals as though they had made a payment against the tax imposed

8 by the Internal Revenue Code on their 2019 taxes and then allowing an advanced refund

9 on that overpayment. Dkt. 72 at 6. Defendants therefore distinguish Cohen and King

10 because this suit essentially seeks to recover the overpayment of a sum alleged to have

11 been excessive. Id.

12

Defendants’ contention mischaracterizes the nature of this suit. Significantly, the

13 gravamen of the complaint is that the IRS’s decision to exclude incarcerated individuals is

14 unlawful because the IRS’s decision was both contrary to law and arbitrary and

15 capricious. This APA suit “questions the administrative procedures” by which the IRS

16 arrived at its decision and whether that decision is unlawful. Cohen, 650 F.3d at 731; see

17 id. at 733 (“Congress has not required exhaustion in APA suits challenging the adequacy

18 of IRS procedures, only in suits ‘for the recovery of any internal revenue tax.’” (quoting 26

19 U.S.C. § 7422(a))).

20

As stated by the Supreme Court in Bowen, 487 U.S. at 893 (citation omitted),

21 “[o]ur cases have long recognized the distinction between an action at law for

22 damages . . . and an equitable action for specific relief . . . . The fact that a judicial

23 remedy may require one party to pay money to another is not a sufficient reason to

24 characterize the relief as ‘money damages.’” The distinction is evident here where the

25 court enjoined defendants from applying criteria that was contrary to law and arbitrary

26 and capricious. The fact that this remedy may require the IRS to issue EIPs, assuming

27 an individual meets the remaining criteria delineated in the CARES Act, does not

28 transform this suit into one for damages. Accordingly, section 7422(a) is not an adequate

19

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 20 of 39

United States District Court Northern District of California

1 alternative remedy. See King, 759 F.3d at 366 (“[T]he plaintiffs are not seeking a tax

2 refund, they ask for no monetary relief.”).

3

Even if the court were to arrive at a contrary conclusion and determine this was a

4 tax refund action, section 7422(a) still fails to offer adequate alternative relief. A remedy

5 is inadequate if it only offers “doubtful and limited relief.” Bowen, 487 U.S. at 901. For

6 example, in Hawkes, 136 S. Ct. at 1815, the Court rejected an alternative remedy where

7 “a landowner [would] apply for a permit and seek judicial review in the event of an

8 unfavorable decision” because “the permitting process can be arduous, expensive, and

9 long.” As persuasively reasoned by the district court in Amador v. Mnuchin, — F. Supp.

10 3d —, 2020 WL 4547950, at *9 (D. Md. Aug. 5, 2020), forcing plaintiffs to file a 2020 tax

11 return, wait until the IRS denies their request for a CARES Act tax credit, file an

12 administrative claim with the IRS seeking reconsideration, and only then file a suit in

13 district court would amount to the “arduous, expensive, and long process” that was

14 rejected in Hawkes. For this separate reason, plaintiffs have no adequate alternative

15 remedy to the APA.

16

To summarize, plaintiffs are challenging an agency action, not seeking a tax

17 refund. For that reason, an adequate remedy is not available by filing a tax refund suit.

18 Further, defendants have not demonstrated the action in question is anything other than

19 final. For that reason, Congress waived sovereign immunity under the APA and the court

20 has subject matter jurisdiction to hear the case.

21 C. Motion for Stay

22

1. Whether Defendants Will Be Irreparably Harmed Absent Stay

23

Defendants contend that the government will be irreparably harmed absent a stay

24 because the preliminary injunction will require the government to issue advance refunds

25 to incarcerated individuals. Mtn. at 8–9. Once the IRS issues the EIPs to incarcerated

26 individuals, it is unlikely that it will be able to recover any of that money, should the

27 preliminary injunction not be upheld on appeal. Id. at 9. This includes both a practical

28 component—prisoners will spend the money—and a legal component—it is uncertain

20

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 21 of 39

United States District Court Northern District of California

1 whether an erroneous refund could be assessed under title 26 U.S.C. § 6201(a).10 Id. In

2 sum, defendants contend that harm to the public fisc is not speculative. Id. at 10.

3

In response, plaintiffs advance three arguments. First, the government cannot

4 suffer harm from an injunction that ends an unlawful practice. Dkt. 66 at 4. Second,

5 administrative expenses to comply with an injunction do not qualify as irreparable harm.

6 Id. Third, defendants’ concern that it may not recover advance payments is entirely

7 speculative. Id. at 5.

8

As an initial matter, defendants have not submitted evidence of actual burdens or

9 harms since imposition of the preliminary injunction and their motion relies on

10 assumptions and projections. See Al Otro Lado, 952 F.3d at 1007. While defendants

11 argue that they have provided an example of real harm in the form of payments to

12 incarcerated individuals that it will not be able to recover, (Mtn. at 9; Dkt. 72 at 4), that

13 example is not supported by any evidentiary filing. As stated in Doe #1 v. Trump, the

14 Supreme Court’s opinion in Nken “places the burden on the government[] and instructs

15 us only to exercise our discretion to enter a stay when irreparable harm is probable, not

16 merely possible. The government cannot meet this burden by submitting conclusory

17 factual assertions and speculative arguments that are unsupported in the record.” 957

18 F.3d at 1059–60 (citing Nken, 556 U.S. at 434; Azar, 911 F.3d at 581). The failure here

19 to produce any evidence regarding the government’s inability to recover funds militates

20 against finding a likelihood of irreparable harm.

21

Moreover, defendants’ arguments that they will be irreparably injured because the

22 IRS will not be able to recover money disbursed to incarcerated individuals is tempered

23 by the fact that the agency already issued EIPs to thousands of incarcerated individuals

24 in April 2020 and, for those payments that were not intercepted by prison officials, the

25 IRS is relying on incarcerated individuals to voluntarily return those advance refunds.

26

27 10 Section 6201 provides the IRS with the general authority to determined and assess tax

28

liabilities including interest, additional amounts, additions to the tax, and assessable penalties. Mtn. at 9.

21

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 22 of 39

United States District Court Northern District of California

1 See Mtn. at 9 n.6. Defendants have not plausibly explained how their approach taken in

2 early May 2020 to recoup erroneously issued payments mitigates the harm in this

3 analogous situation.

4

The court also finds persuasive the Ninth Circuit’s reasoning in Rodriguez v.

5 Robbins, 715 F.3d 1127, 1145 (9th Cir. 2013), where the court noted that “[t]he

6 government provide[d] almost no evidence that it would be harmed in any way by the

7 district court’s order, other than its assertion that the order enjoins ‘presumptively lawful’

8 government activity and is contrary to the plain meaning of the statute.” The court then

9 reasoned that the government’s “arguments are obviously premised on [its] view of the

10 merits because it cannot suffer harm from an injunction that merely ends an unlawful

11 practice . . . .” Id. (citing Zepeda v. I.N.S., 753 F.2d 719, 727 (9th Cir. 1983)). Here,

12 defendants rely on “self-evident” harm, (Dkt. 72 at 4), rather than evidence of such harm.

13 Thus, an order enjoining unlawful conduct cannot harm the government.

14

Next, defendants cite the “herculean task, as a logistical and administrative matter,

15 to attempt to recover all the advance refunds sent to prisoners.” Mtn. at 10. As plaintiffs

16 point out, however, the Ninth Circuit has cast doubt on the government’s position. In the

17 immigration context, the Ninth Circuit has held that “diversion of the [government]

18 agencies’ time, resources, and personnel from other pressing immigration adjudication

19 and enforcement priorities’ due to the need to ask additional questions and possibly

20 review documentary evidence at bond hearings was ‘minimal’ evidence of harm to the

21 government.” Al Otro Lado, 952 F.3d at 1008 (alteration in original) (quoting Hernandez

22 v. Sessions, 872 F.3d 976, 995 (9th Cir. 2017)).

23

Accordingly, defendants have not met their burden to demonstrate an irreparable

24 injury absent a stay.

25

2. Whether Defendants Are Likely to Succeed on the Merits

26

Defendants contend that because the CARES Act does not mandate the IRS to

27 distribute the EIP at all and only requires the IRS to provide a tax credit for tax year 2020,

28 then the IRS did not act contrary to law and its decision was not arbitrary and capricious.

22

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 23 of 39

United States District Court Northern District of California

1 Mtn. at 8. Because the court grants plaintiffs’ motion for summary judgment on their APA

2 706(2) claim, it necessarily follows that defendants are not likely to succeed on the

3 merits.

4

Because defendants do not satisfy the first two Nken factors, the court does not

5 reach the remaining factors. See Nken, 556 U.S. at 434–35. For the foregoing reasons,

6 defendants’ motion for stay is DENIED.

7 D. Motion for Summary Judgment

8

Plaintiffs move for summary judgment on their first and second causes of action.11

9 As a threshold matter, plaintiffs contend that there are no genuine disputes of material

10 fact and review is limited to the administrative record. MSJ at 6. Plaintiffs state that

11 based on the declaration from the IRS’s chief counsel explaining the agency’s

12 contemporaneous reasons for its decision, the absence of any indication from defendants

13 that additional reasons were considered, and the fact that plaintiffs’ challenge is a legal

14 one, they do not seek to supplement the record or conduct discovery for this motion. Id.

15 at 6–7. Defendants do not challenge this contention and present no facts that controvert

16 those produced by plaintiffs.

17

This case presents an interesting threshold question: whether the court can

18 proceed to summary judgment on APA claims before the agency provides or certifies the

19 administrative record. In cases applying section 706(2)(A), “the focal point for judicial

20 review should be the administrative record already in existence, not some new record

21 made initially in the reviewing court.” Camp v. Pitts, 411 U.S. 138, 142 (1973) (per

22 curiam). The court finds that summary judgment on the evidence before the court is

23 appropriate for a few reasons.

24

First, “[t]he whole administrative record . . . is not necessarily those documents

25 that the agency has compiled and submitted as the administrative record. The whole

26 administrative record, therefore, consists of all document and materials directly or

27

28

11 Plaintiffs state that if the court grants summary judgment on their class-wide APA claims, their third claim under the Little Tucker Act will be mooted. MSJ at 1 n.1.

23

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 24 of 39

United States District Court Northern District of California

1 indirectly considered by agency decision-makers and includes evidence contrary to the

2 agency’s position.” Thompson v. U.S. Dep’t of Labor, 885 F.2d 551, 555 (9th Cir. 1989)

3 (citation and internal quotation marks omitted). In this case, the relevant exhibits

4 appended to the Salahi Declaration are the IRS’s own materials and publications. While

5 plaintiffs, rather than the agency, compiled and submitted those documents, they can still

6 be considered part of the administrative record. Further, as the court determined in its

7 prior order, the documents are judicially noticeable. Dkt. 50 at 4 n.3.

8

Second, the declarations submitted by named plaintiffs and agency decision-

9 makers are relevant with regard to the court’s subject matter jurisdiction and whether

10 defendants will be irreparably harmed absent a stay. In other words, they are relevant for

11 purposes other than the court’s section 706 determination. For example, in Lujan v.

12 National Wildlife Foundation, the Supreme Court reviewed two affidavits that purported to

13 establish the plaintiffs were within the contemplated zone of interests of the relevant

14 statute and thus able to seek judicial review under § 702. 497 U.S. 871, 885 (1990) (“We

15 turn, then, to whether the specific facts alleged in the two affidavits considered by the

16 District Court raised a genuine issue of fact as to whether an ‘agency action’ taken by

17 petitioners caused respondent to be ‘adversely affected or aggrieved . . . within the

18 meaning of a relevant statute.” (alteration in original)).

19

Finally, defendants do not challenge whether any particular document is part of the

20 administrative record. The evidence before the court remains unchanged since the

21 court’s preliminary injunction order and reflects what was directly or indirectly considered

22 by agency decision-makers. Accordingly, the court proceeds to the merits of plaintiffs’

23 claims.

24

1. First Claim—§ 706(1): Unlawfully Withheld or Unreasonably Delayed

25

Plaintiffs’ first claim is that defendants unlawfully withheld EIP benefits to plaintiffs

26 and class members in violation of title 5 U.S.C. § 706(1). Compl. ¶ 42. Section 706(1) of

27 the APA provides that a court “shall compel agency action unlawfully withheld or

28 unreasonably delayed.” 5 U.S.C. § 706(1). “A court can compel agency action under this

24

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 25 of 39

United States District Court Northern District of California

1 section only if there is ‘a specific, unequivocal command’ placed on the agency to take a

2 ‘discrete agency action,’ and the agency has failed to take that action.” Vietnam

3 Veterans of Am. v. Cent. Intelligence Agency, 811 F.3d 1068, 1075 (9th Cir. 2016)

4 (quoting Norton v. S. Utah Wilderness Alliance (“SUWA”), 542 U.S. 55, 63–64 (2004)).

5 Discrete agency actions include “rules, orders, licenses, sanctions, and relief.” Hells

6 Canyon Pres. Council v. U.S. Forest Serv., 593 F.3d 923, 932 (9th Cir. 2010) (citing

7 SUWA, 542 U.S. at 62–63; and 5 U.S.C. § 551(13)).

8

Plaintiffs argue that the discrete agency action here is the failure to disburse

9 advance refunds to certain eligible individuals, specifically, incarcerated individuals and

10 the Secretary has zero discretion to decide who constitutes an eligible individual. MSJ at

11 10. According to plaintiffs, defendant have both a legal duty to perform a discrete agency

12 action and failed to perform that action. Id. Defendants advance no argument regarding

13 § 706(1) other than asserting plaintiffs’ interpretation of the CARES Act generally is

14 incorrect.

15

There is no doubt that the CARES Act compels the Treasury and the IRS to take a

16 discrete agency action. The definition of agency action includes “relief” and, in turn, the

17 definition of relief includes “grant of money.” 5 U.S.C. § 551(11), (13). The CARES Act

18 requires the Treasury Secretary to disburse advance refund payments in the amount that

19 would have been allowed as a tax credit under § 6428(f)(1), (3) (“The Secretary shall,

20 subject to the provisions of this title, refund or credit any overpayment attributable to this

21 section as rapidly as possible.”).

22

It is equally clear that the IRS has taken significant action related to the CARES

23 Act payments. On June 3, 2020, the Treasury Department announced that it had

24 delivered 159 million EIPs worth more than $267 billion. Salahi Decl., Ex. 3. The first

25 disbursement of EIPs occurred just fourteen days after the passage of the CARES Act

26 and the TIGTA assessed that 98 percent of EIPs were correctly computed. Id., Ex. 6 at

27 3–4. Further, the IRS acted with regard to incarcerated individuals. As plaintiffs allege

28 and the TIGTA report confirms, the IRS issued EIPs to some incarcerated individuals in

25

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 26 of 39

United States District Court Northern District of California

1 April 2020 and then decided to change course and not issue EIPs to incarcerated

2 individuals as well as attempt to claw back already issued payments. E.g., Compl. ¶¶ 17,

3 19.

4

These steps are not the hallmarks of an agency that has failed to act. What

5 plaintiffs are objecting to is not so much the failure to act but the manner in which the IRS

6 decided to stop payments to incarcerated individuals and the legality of its decision to do

7 so. Indeed, the complaint alleges that “the IRS took action to exclude incarcerated

8 persons from subsequent EIP disbursements.” Id. ¶ 19 (emphasis added).

9

This case is similar to Hells Canyon Preservation Council v. U.S. Forest Service,

10 593 F.3d at 932, where the plaintiffs alleged that the Forest Service failed to take the

11 discrete action of prohibiting the use of motorized vehicles in certain wilderness areas,

12 which was required by statute. The Ninth Circuit noted that the agency had been

13 carrying out its statutory responsibility since 1981 by drawing certain boundaries, but the

14 plaintiffs were only taking issue with the way in which the agency carried out its

15 obligation. Id. The court summarized why § 706(1) was not applicable: “[h]ad the Forest

16 Service failed to establish a boundary at all, plaintiffs might have a case for § 706(1)

17 review, but we have no basis for compelling the Forest Service to adopt [the plaintiffs’]

18 preferred boundary.” Id. at 933 (citation omitted). Instead, the plaintiff’s argument was

19 “better phrased as a claim that the Forest Service’s boundary determination was

20 ‘arbitrary and capricious.’”

21

Here, the IRS carried out its statutory responsibility by issuing advance refund

22 payments to millions of Americans. It also acted with regard to incarcerated individuals;

23 the agency initially issued EIPs to incarcerated individuals then changed its decision.

24 Purposefully excluding incarcerated individuals from receiving advance refund payments

25 is akin to drawing a boundary. That boundary might be arbitrary and capricious or

26 contrary to law, but at the very least the agency acted.

27

For the foregoing reasons, plaintiffs’ motion for summary judgment for their first

28 claim is DENIED.

26

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 27 of 39

United States District Court Northern District of California

1

2. Second Claim—APA Contrary to Law & In Excess of Statutory

2

Authority

3

Plaintiffs’ second claim is that defendants’ policy denying EIP benefits is contrary

4 to law, in excess of statutory authority, and arbitrary and capricious. The court addresses

5 the arbitrary and capricious element in the next section.

6

The APA requires courts to “hold unlawful and set aside agency action, findings,

7 and conclusions found to be . . . an abuse of discretion, or otherwise not in accordance

8 with law.” 5 U.S.C. § 706(2)(A). Generally, plaintiffs argue that defendants’ action is

9 contrary to law and exceeds statutory authority because the CARES Act mandates

10 distribution of the advance refund to eligible individuals and otherwise eligible

11 incarcerated individuals are not excluded as an eligible individual under the Act. MSJ at

12 12–13.

13

a. Whether the CARES Act Mandates the IRS to Issue Advance

14

Refunds

15

Plaintiffs contend that the central purpose of the CARES Act was to provide

16 emergency assistance to Americans affected by the pandemic. MSJ at 7. Plaintiffs

17 submit that section 6428 requires the IRS to issue advance refunds and to do so as

18 rapidly as possible. Id. To that end, they recapitulate the court’s preliminary injunction

19 analysis. See id. at 7–8. In response, defendants advance novel arguments regarding

20 the language and structure of the Act, which the court addresses separately.

21

i.

Language

22

As previously noted, section 6428(f)(3)(A) provides in relevant part: “The Secretary

23 shall, subject to the provisions of this title, refund or credit any overpayment attributable

24 to this section as rapidly as possible.” 26 U.S.C. § 6428(f)(3)(A).

25

Defendants agree that this subsection’s use of the term “shall” indicates a

26 mandatory command. Dkt. 70 at 8. They assert, however, that that command does not

27 require the IRS to issue advance refunds to all eligible individuals before December 31,

28 2020. Id. Instead, defendants argue the “shall” command modifies only the phrase “as

27

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 28 of 39

United States District Court Northern District of California

1 rapidly as possible.” Dkt. 70 at 8–9. Stated differently, it applies to the speed with which

2 the IRS must issue the advance refunds, not the scope of such issuance. Id.

3

In their reply, plaintiffs contend that this construction would lead to plainly

4 unacceptable results. Principally, plaintiffs explain that, if adopted, it would permit the

5 IRS to unilaterally choose not to issue advance refunds to anyone. Dkt. 73 at 2. In that

6 even, plaintiffs further explain, subsection (f)(3)(A)’s requirement to act “as rapidly as

7 possible” would not be at issue and, thus, the IRS would necessarily be in compliance

8 with the statute. Id.

9

As defendants acknowledge, subsection (a) creates a refundable tax credit to be

10 paid in tax year 2020. Dkt. 70 at 2. The Second Circuit described refundable tax credits

11 as follows:

12

taxpayers who are eligible for tax “refunds” based on [Earned

Income Tax Credit (“EITC”)] and [Additional Child Tax Credit

13

(“ACTC”)] tax credits do not actually “overpay” their income

taxes, at least in the traditional sense of the word. Instead, the

14

EITC and ACTC refundable tax credit programs are structured

to create the legal fiction that recipients make “overpayments”

15

on their taxes, thereby entitling them to the resulting tax

“refunds,” as a mechanism for achieving certain social policy

16

goals.

17 Sarmiento v. United States, 678 F.3d 147, 152 (2d Cir. 2012); (citing Sorenson v. Sec’y

18 of Treasury, 475 U.S. 851, 864 (1986)). Next, subsection (f)(1) establishes the advance

19 refund: “each individual who was an eligible individual for [tax year 2019] shall be treated

20 as having made a payment against the tax . . . for [tax year 2019] in an amount equal to

21 the advance refund amount for [tax year 2019].” § 6428(f)(1). Subsection (f)(2) defines

22 the “advance refund amount” with reference to the tax credit for tax year 2020 defined in

23 subsection (a): “the advance refund amount is the amount that would have been allowed

24 as a credit under this section for [tax year 2019] if this section (other than subsection (e)

25 and this subsection) had applied to [tax year 2019]. § 6428(f)(2).

26

At this point, Sarmiento is especially relevant. In that case, the plaintiff taxpayers

27 offered to settle with the IRS to pay their outstanding tax liabilities and as a condition of

28 the settlement, plaintiffs agreed that the IRS could retain any refunds or credits to which 28

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 29 of 39

United States District Court Northern District of California

1 they may have been entitled to receive for 2007 or for earlier tax years. Sarmiento, 678

2 F.3d at 150. The parties disputed when an advance refund provided by the Economic

3 Stimulus Act (“ESA”) of 2008. was owed to the plaintiffs. If the advance refund was owed

4 in 2007, then it was subject to the settlement agreement; however, if the advance refund

5 was owed in 2008, then the refund was outside the time period of the agreement and

6 therefore not subject to it. Id. at 155. After reviewing the ESA’s structure—which mirrors

7 the CARES Act’s structure—the Second Circuit explained section 6428 as follows:

8

we think the ESA is clear on its face with regard to which tax

years the stimulus credits relate: the basic credit available

9

under subsections (a) and (b) grants eligible taxpayers a refund

applicable to the 2008 tax year, whereas the “advance refunds”

10

available under subsection (g) grants eligible taxpayers a

refund applicable to the 2007 tax year.

11

12 Id. “Accordingly, plaintiffs’ ESA tax refund was within the temporal reach of the

13 [settlement] agreements additional consideration provision, which restricted the IRS’s

14 entitlement to withhold plaintiffs’ tax refunds to those pertaining to the 2007 tax year.” Id.

15

Given that the advance refund was owed to the plaintiffs in 2007, the Second

16 Circuit held that the IRS could withhold payment of the refund under the terms of the

17 settlement agreement. Relatedly, the Sarmiento court also found persuasive the fact that

18 the “shall be treated” language in § 6428(g)(1) (currently located at § 6428(f)(1)) “is best

19 interpreted as establishing the legal fiction that eligible taxpayers overpaid their 2007

20 taxes in an amount equal to the ‘advance refund’ of their ESA stimulus credit . . . .” Id. at

21 156. It further reasoned that the “negative conditional phrasing” used in subsection (g)(2)

22 (currently subsection (f)(2)) “seems to reflect a presumption on the part of Congress that

23 the ‘advance refunds’ available under subsections (f) and (g), in contrast to those

24 available under subsections (a) and (b), do apply to the 2007 tax year.” Id.

25

The court finds Sarmiento’s reasoning persuasive. Extending it here, the court

26 concludes that the CARES Act’s advance refund is owed to taxpayers who meet the

27 criteria of the statute in tax year 2019 (as opposed 2020), and that advanced refund is

28 based on a constructive overpayment of their 2019 tax returns (or 2018 pursuant to 29

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 30 of 39

United States District Court Northern District of California

1 subsection (f)(5)).

2

Separate from the Second Circuit’s reasoning in Sarmiento, defendants’ proposed

3 construction of the “shall” verb used in subsection (f)(3)(A) fails for other reasons. While

4 defendants are correct that subsection (f)(3)(A)’s use of the verb “shall” does require the

5 IRS to act “as rapidly as possible,” that verb also compels it to “refund” or “credit.” Plainly

6 read, then, the IRS must (subject to other provisions of title 26) refund or credit an

7 overpayment attributable to section 6428 and do so as quickly as possible. Defendants

8 fail to proffer any authority or grammar-based justification to limit the reach of the “shall”

9 verb to only this section’s final phrase. Indeed, it appears that the only other authority on

10 this issue would reject any such limitation. R.V. v. Mnuchin, 2020 WL 3402300, at *7 (D.

11 Md. June 19, 2020) (“The Act therefore requires the government to pay the fictional

12 overpayment, and be quick about it.”).

13

Separately, if Congress meant to express defendants’ construction that the “shall”

14 command “applies only to the speed with which the IRS must issue the advance refunds,”

15 (Dkt. 70 at 12), it could have done so by reorganizing this section to simply state: The

16 Secretary shall as rapidly as possible, and subject to the provisions of this title, refund

17 or credit any overpayment attributable to this section. But Congress did not. In any

18 event, as plaintiffs point out, defendants’ position on this issue would, if adopted, permit it

19 to lawfully withhold issuing any refund or credit in the first instance. Such an outcome is

20 at odds with the Second Circuit’s conclusion in Sarmiento and the Act’s broader

21 economic stimulus goals.

22

ii.

Structure

23

Defendants further assert that the remainder of subsection (f) supports their

24 construction. For example, subsections (f)(1) and (f)(5) contemplate that the IRS would

25 only look to tax returns from 2018 and 2019 to determine eligibility and if the IRS does

26 not have any of this information, then such individual would not receive an advance

27 refund. Dkt. 70 at 9. These individuals must wait to file their 2020 tax returns because,

28 according to defendants, the statute neither confers on them a right to an advance

30

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 31 of 39

United States District Court Northern District of California

1 refund, nor provides a mechanism to secure that advance refund before they file their

2 2020 return. Id. at 10. Defendants also argue that because no refund or credit is allowed

3 after December 31, 2020, Congress was aware that there would be a subset of refunds

4 or credits for which eligible individuals would be entitled but could not be issued as an

5 advance refund after that date. Id. Finally, defendants point to subsections (a), (c), and

6 (e) as supporting an interpretation of section 6428 as providing a tax credit, not simply a

7 $1,200 stimulus payment. See id. at 10–11.

8

In reply, plaintiffs argue that subsection (f)(5) requires the IRS to look at various

9 readily available sources of information to identify eligible persons but does not provide

10 discretion to the IRS on whether to issue an advance refund. Dkt. 73 at 3.

11

With regard to structure, defendants plausibly argue that Congress did not intend

12 every “eligible individual,” as defined by the Act, to receive an advance refund. Thus, if

13 an eligible individual does not have a 2018 or 2019 tax return on file, then he or she must

14 wait until filing of his or her 2020 tax returns to receive a tax credit and is not eligible for

15 an advance refund. However, this conclusion extends to those eligible individuals who

16 lack the above-referenced information on file. That conclusion says nothing about those

17 who the IRS maintains the relevant information to determine whether he or she is entitled

18 to receive an advance refund

19

Defendants next argue that subsection (a) is the only part of the Act that creates a

20 tax benefit and that this reading is confirmed by subsection (b), which confirms that the

21 subsection (a) credit “shall be treated as allowed by subpart C of part IV of subchapter A

22 of chapter 1.” Dkt. 70 at 10. Subpart C includes other refundable credits that are

23 straightforward tax credits without the possibility of an advance refund. Id.

24

The court agrees with defendants that the CARES Act mandates a refundable

25 credit, which is generally the same as the tax credits referenced in subpart C. Yet, the

26 distinguishing factor between the CARES Act (as well as earlier versions of section 6428)

27 and those refundable credits is that subsection (f) of the Act provides an explicit

28 mechanism for immediate and mandatory distribution of the refundable credit. This

31

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 32 of 39

United States District Court Northern District of California

1 distinguishing factor reinforces, rather than detracts from, the court’s conclusion that the

2 CARES Act is different from other refundable credits.

3

Accordingly, the court finds that the CARES Act mandates the IRS to issue

4 advance refund payments to those eligible individuals who meet the statutory criteria.

5

b. Whether Incarcerated individuals are Eligible Individuals for

6

Purposes of the CARES Act

7

Plaintiffs argue that the statute does not leave open the question of who is eligible

8 to receive an advance refund. MSJ at 8. They cite the court’s preliminary injunction

9 order and urge the court to make a similar finding here. Defendants advance no

10 argument in opposition to this contention.

11

The court’s prior order determined that the language of section 6428(d)12 did not

12 indicate that Congress left the definition of “eligible individual” open-ended or otherwise

13 up to the Secretary’s discretion to change. Dkt. 50 at 24 (citing Jimenez v. Quarterman,

14 555 U.S. 113, 118 (2009) (“It is well established that, when the statutory language is

15 plain, we must enforce it according to its terms.”)). Further, past versions of section 6428

16 indicated that Congress knew how to exclude incarcerated individuals if it so desired, but

17 that language did not appear in this version of the statute. See id. at 24–25. Finally, the

18 court found persuasive the fact that defendants asserted three different interpretations of

19 who constituted an eligible individual both publicly and in this litigation. Id. at 25.

20

Because defendants advance no argument to the contrary, the court reaffirms its

21 prior finding that incarcerated individuals are not excludable as an “eligible individual”

22 under the Act. For that reason, it follows that defendants’ interpretation of the CARES

23 Act is “not in accordance with law.” 5 U.S.C. § 706(2)(A).

24

For the foregoing reasons, plaintiffs’ motion for summary judgment on their second

25

26 12 Section 6428(d) provides: “For purposes of this section, the term ‘eligible individual’

27

means any individual other than (1) any nonresident alien individual, (2) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for

28

a taxable year beginning in the calendar year in which the individual’s taxable year begins, and (3) an estate or trust.” 26 U.S.C. § 6428(d).

32

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 33 of 39

United States District Court Northern District of California

1 claim that the agency action was contrary to law and in excess of statutory authority is

2 GRANTED.

3

3. Second Claim—APA: Arbitrary and Capricious

4

Plaintiffs’ second claim also alleges that defendants’ action is arbitrary and

5 capricious. Compl. ¶ 45. “‘[A]rbitrary and capricious’ review under the APA focuses on

6 the reasonableness of an agency’s decision-making processes.” CHW W. Bay v.

7 Thompson, 246 F.3d 1218, 1223 (9th Cir. 2001) (citations omitted). Agency action is

8 invalid if the agency fails to give adequate reasons for its decisions, fails to examine the

9 relevant data, or offers no “rational connection between the facts found and the choice

10 made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463

11 U.S. 29, 43 (1983); see also Encino Motorcars, 136 S. Ct. at 2125. “Chevron deference

12 is not warranted where the regulation is ‘procedurally defective’—that is, where the

13 agency errs by failing to follow the correct procedures in issuing the regulation.” Encino

14 Motorcars, 136 S. Ct. at 2125 (quoting Mead, 533 U.S. at 227). Where “the agency has

15 failed to ‘examine the relevant data’ or failed to ‘articulate a rational explanation for its

16 actions,’” its decision is arbitrary and capricious. Genuine Parts Co. v. EPA, 890 F.3d

17 304, 311–12 (D.C. Cir. 2018) (quoting Carus Chem. Co. v. EPA, 395 F.3d 434, 441 (D.C.

18 Cir. 2005)).

19

But “[t]he scope of review under the ‘arbitrary and capricious’ standard is narrow

20 and a court is not to substitute its judgment for that of the agency.” State Farm, 463 U.S.

21 at 43; San Luis & Delta-Mendota Water Auth. v. Jewell, 747 F.3d 581, 601 (9th Cir. 2014)

22 (“Although our inquiry must be thorough, the standard of review is highly deferential; the

23 agency’s decision is ‘entitled to a presumption of regularity,’ and we may not substitute

24 our judgment for that of the agency.” (quoting Citizens to Preserve Overton Park, Inc. v.

25 Volpe, 401 U.S. 402, 415–16 (1971), abrogated in part on other grounds as recognized in

26 Califano v. Sanders, 430 U.S. 99, 105 (1977))).

27

Here, plaintiffs argue that defendants’ policy is arbitrary and capricious because

28 defendants have failed to provide an adequate reason for its decision. MSJ at 13. Next,

33

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 34 of 39

United States District Court Northern District of California

1 the policy relies on factors that Congress did not intend it to consider. Id. at 14. Plaintiffs

2 contend that, to the extent defendants claim the policy was adopted as an anti-fraud

3 measure, that reason is a post-hoc declaration offered in this lawsuit and defendants

4 have not logically connected instances of fraud to the broader decision not to disburse

5 any payments to incarcerated individuals. Id. In response, defendants argue that

6 because section 6428 does not require the IRS to issue advance refund payments to

7 plaintiffs, the IRS has not acted arbitrarily and capriciously. Dkt. 70 at 16.

8

The court’s prior order determined that plaintiffs were likely to succeed on the

9 merits because defendants had not directed the court to any evidence indicating that the

10 Treasury Department or the IRS gave any reason for the decision to exclude payments to

11 incarcerated individuals, much less an adequate one. Dkt. 50 at 27–28. Defendants

12 have not advanced any convincing explanation or reason to deviate from the court’s prior

13 finding.

14

For example, defendants cited a concern on the part of the IRS that it regularly

15 received information about possible fraudulent tax refunds or other frivolous tax activity

16 involving incarcerated individuals. See Dkt. 70 at 6–7; Dkt. 44-1, ¶¶ 5–6. Yet, this

17 explanation was not publicly advanced by the agency at the time it reached its

18 determination and therefore constitutes an impermissible post hoc rationalization. See

19 Dep’t of Homeland Sec. v. Regents of Univ. of Cal., 140 S. Ct. 1891, 1909 (2020) (“While

20 it is true that the Court has often rejected justifications belatedly advanced by advocates,

21 we refer to this as a prohibition on post hoc rationalizations, not advocate rationalizations,

22 because the problem is the timing, not the speaker. The functional reasons for requiring

23 contemporaneous explanations apply with equal force regardless whether post hoc

24 justifications are raised in court by those appearing on behalf of the agency or by agency

25 officials themselves.”).

26

In sum, the court reaffirms its prior finding that defendants’ policy of excluding

27 incarcerated individuals from receiving an EIP solely on the basis of their incarcerated

28 status is arbitrary and capricious. For the foregoing reasons, plaintiffs’ motion for

summary judgment on their second claim that the agency action was arbitrary 34

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 35 of 39

United States District Court Northern District of California

1 and capricious is GRANTED.

2

4. Whether Plaintiffs Qualify for a CARES Act Advance Refund

3

Finally, defendants argue that plaintiffs’ motion should be denied because they

4 have not established, as a factual matter, that they are entitled to a CARES Act credit.

5 Dkt. 70 at 16. According to defendants, plaintiffs’ only support for their contention that

6 they have satisfied the statutory requirement is in the form of their unsworn declarations,

7 neither which contains a valid signature. Id. at 17 (citing Dkts. 13, 14). Defendants

8 further contend that plaintiffs have failed to establish that they have a valid Social

9 Security Number, fall within the income limitations of subsection (c), and are not claimed

10 as a dependent on someone else’s tax return. Id. at 17–18.

11

In response, plaintiffs contend that their declarations establish their eligibility for

12 relief because they asserted that they meet the statutory criteria. Dkt. 73 at 9–10.

13 According to plaintiffs, defendant do not submit any evidence to dispute plaintiffs’

14 declarations, despite having comprehensive databases with information about

15 incarcerated people. Id. at 10. Plaintiffs next argue that whether they have Social

16 Security Numbers and their adjusted gross income is relevant only to the amount of

17 payment they would receive, not whether they are eligible individuals for purposes of the

18 Act. Id. at 12. Finally, plaintiffs assert that the Civil Local Rules expressly authorizes the

19 use of electronic signatures and their declarations include an attestation from plaintiffs

20 that they authorized their electronic signatures. Id. at 12–13.

21

Defendants misapprehend the nature of this suit. At its core, this is not a tax

22 refund action; rather, plaintiffs’ claims are grounded in the APA and challenge the IRS’s

23 interpretation of the CARES Act and the procedures by which the IRS arrived at its

24 interpretation. While it is true that plaintiffs aver that they are eligible individuals and

25 otherwise meet the criteria established by the Act, these facts are not necessary to

26 prevail on an APA claim. The focus of an APA claim is on the agency’s action, not on the

27 plaintiffs. Of course, plaintiffs must meet Article III’s standing requirement as well as

28 other prudential requirements, such as the zone-of interest test, to establish a personal

35

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 36 of 39

United States District Court Northern District of California

1 stake in the outcome of the case.

2

The court takes no position on whether plaintiffs or class members are in fact

3 owed advance refund payments or the amount of those payments. Indeed, the court’s

4 Rule 23(b)(2) finding was premised on the “indivisible nature of the injunctive or

5 declaratory remedy warranted” but not “an individualized award of monetary damages.”

6 Dkt. 50 at 42 (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 360–61 (2011)).

7 The court’s determination in this order is that the IRS’s action was “arbitrary,

8 capricious, . . . or otherwise not in accordance with law” and the appropriate remedy is to

9 “hold unlawful and set aside” that agency action. 5 U.S.C. § 706(2). It is incumbent on

10 the IRS, as the agency charged by Congress, to make individual determinations whether

11 an individual is an “eligible individual” and meets the various criteria delineated in the Act.

12

5. Class Certification

13

Finally, plaintiffs request the court confirm class certification for purposes of final

14 judgment. MSJ at 15 n.7. Though they acknowledge that the court provisionally certified

15 a class, plaintiffs contend that no change in circumstances material to the propriety of

16 class certification has arisen. Id. Defendants respond that this request should be denied

17 because the named plaintiffs lack standing, have failed to establish a waiver of sovereign

18 immunity, and have failed to factually establish that they meet the eligibility criteria of

19 section 6428. Dkt. 70 at 18.

20

In its prior order, the court provisionally certified a class for purposes of the

21 preliminary injunction. Dkt. 50 at 43–44. Because of the time sensitive nature of

22 plaintiffs’ requested relief and because defendants failed to offer any substantive

23 argument against class certification, the court’s certification was provisional. Id. at 36–

24 37. With respect to the current motions, defendants’ arguments against class certification

25 are limited to the same arguments that the court rejects throughout this order. Further,

26 defendants have put forward no contention, whether factual or legal, challenging the

27 court’s Rule 23(a) and 23(b)(2) findings in the prior order.

28

Accordingly, the court certifies a class as defined in the court’s October 2, 2020

36

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 37 of 39

United States District Court Northern District of California

1 order. Dkt. 62 at 12–13.

2

6. Relief

3

Plaintiffs request the court to enter a declaration that

4

(1) Section 6428 does not authorize Defendants to withhold

advance refunds or credits from Class Members solely

5

because they are or were incarcerated; (2) Defendants

unlawfully withheld or unreasonably delayed delivery of

6

advance refunds to Class Members pursuant to 5 U.S.C.

§ 706(1); (3) Defendants’ policy of withholding advance refunds

7

or credits from Class Members because they are or were

incarcerated is contrary to law and in excess of statutory

8

authority under 5 U.S.C. § 706(2); and (4) Defendants’ policy is

also arbitrary and capricious under 5 U.S.C. § 706(2).

9

10 MSJ at 15. They also request the court to convert its preliminary injunction into a

11 permanent injunction. Id. at 15–16.

12

As a general matter, “[t]he court’s decision to grant or deny injunctive or

13 declaratory relief under [the] APA is controlled by principles of equity.” Nat’l Wildlife

14 Fed’n v. Espy, 45 F.3d 1337, 1343 (9th Cir. 1995) (citations omitted). The court has

15 determined above that the IRS’s decision to exclude incarcerated individuals from

16 receiving an EIP solely on the basis of their status as incarcerated individuals violated the

17 APA. The court finds that declaratory relief is a proper remedy for defendants’ violation

18 of the APA. Thus, the court finds and declares that title 26 U.S.C. § 6428 does not

19 authorize defendants to withhold advance refunds or credits from class members solely

20 because they are or were incarcerated. The court further finds and declares that

21 defendants’ policy that persons who are or were incarcerated at any time in 2020 were

22 ineligible for advance refunds under the Act is both arbitrary and capricious and not in

23 accordance with law.

24

Next, plaintiffs request a permanent injunction that enjoins defendants from

25 withholding advance refunds or credits from any class member on the sole basis that

26 they are or were incarcerated and order reconsideration of previously filed claims. They

27 also seek vacatur of the agency’s policy. “Vacatur is the ‘standard remedy’ when a court

28 concludes that an agency’s conduct was illegal under the APA.” California by & through 37

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 38 of 39

United States District Court Northern District of California

1 Becerra v. U.S. Dep’t of the Interior, 381 F. Supp. 3d 1153, 1178 (N.D. Cal. 2019) (citing

2 Pollinator Stewardship Council v. U.S. EPA, 806 F.3d 520, 532 (9th Cir. 2015)); see also

3 Idaho Farm Bureau Fed’n v. Babbitt, 58 F.3d 1392, 1405 (9th Cir. 1995) (“Ordinarily

4 when a regulation is not promulgated in compliance with the APA, the regulation is

5 invalid.”).

6

While defendants have not promulgated a regulation, vacatur of their unlawful

7 policy excluding incarcerated individuals from receiving CARES Act benefits solely on the

8 basis for such status is warranted. Further, for reasons discussed herein, the court also

9 exercises its equitable powers to convert its preliminary injunction into a permanent

10 injunction.

11

CONCLUSION

12

For the foregoing reasons, defendants’ motion for stay pending appeal is DENIED.

13 Plaintiffs’ motion for summary judgment of their first claim is DENIED and their motion for

14 summary judgment of their second claim is GRANTED. As discussed herein, the court

15 finds and declares that defendants’ policy violated the APA and is hereby VACATED.

16 The Court also vacates the provisional certification of the class and certifies a litigation

17 class for all purposes. Finally, the court enters the following permanent injunction.

18

PERMANENT INJUNCTION

19

Defendants Steven Mnuchin, in his official capacity as the Secretary of the U.S.

20 Department of Treasury; Charles Rettig, in his official capacity as U.S. Commissioner of

21 Internal Revenue; the U.S. Department of the Treasury; the U.S. Internal Revenue

22 Service; and the United States of America, are hereby enjoined from withholding benefits

23 pursuant to 26 U.S.C. § 6428 from plaintiffs or any class member on the sole basis of

24 their incarcerated status. Within 30 days of the court’s September 24, 2020 order,

25 defendants shall reconsider advance refund payments to those who are entitled to such

26 payment based on information available in the IRS’s records (i.e., 2018 or 2019 tax

27 returns), but from whom benefits have thus far been withheld, intercepted, or returned on

28 the sole basis of their incarcerated status. Within 30 days of the court’s September 24,

2020 order, defendants shall reconsider any claim filed through the “non-filer” online 38

Case 4:20-cv-05309-PJH Document 87 Filed 10/14/20 Page 39 of 39

United States District Court Northern District of California

1 portal or otherwise that was previously denied solely on the basis of the claimant’s

2 incarcerated status. Defendants shall take all necessary steps to effectuate these

3 reconsiderations, including updates to the IRS website and communicating to federal and

4 state correctional facilities. Within 45 days of the court’s September 24, 2020 order,

5 defendants shall file a declaration confirming these steps have been implemented,

6 including data regarding the number and amount of benefits that have been disbursed.

7

IT IS SO ORDERED.

8 Dated: October 14, 2020

9

/s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

10

United States District Judge

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 39

 
 Case 4:20-cv-05309-PJH Document 90 Filed 10/16/20 Page 1 of 2

United States District Court Northern District of California

1

2

3

4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6

7

COLIN SCHOLL, et al.,

8

Plaintiffs,

Case No. 20-cv-05309-PJH

9

v.

10

STEVEN MNUCHIN, et al.,

11

Defendants.

ORDER DENYING MOTION FOR STAY AND GRANTING MOTION FOR RECONSIDERATION
Re: Dkt. No. 78

12

13

14

Defendants’ motion for stay pending appeal came on for hearing before this court

15 on October 15, 2020. Plaintiffs appeared through their counsel, Kelly Dermody, Yaman

16 Salahi, Christina Alvernaz, Mona Tawatao, and Jallé Dafa. Defendants appeared

17 through their counsel, Landon Yost. Having read the papers filed by the parties and

18 carefully considered their arguments and the relevant legal authority, and good cause

19 appearing, the court hereby rules as follows, for the reasons stated at the hearing, and

20 the following reasons.

21

On October 7, 2020, this court issued an order that, in relevant part, ordered

22 defendants to mail notice to class members no later than October 15, 2020. Dkt. 69 at 5–

23 6. On October 9, 2020, defendants filed the present motion for stay of the court’s

24 October 7th order. Dkt. 78. As stated at the hearing, the court DENIES the motion to

25 stay and instead construes defendants’ motion as a motion for reconsideration of the

26 deadlines set in the court’s October 7th order and GRANTS defendants’ motion.

27

As agreed at the hearing, defendants shall immediately compile packets

28 containing legal notice, IRS Forms 1040, and instructions for completing and mailing the

Case 4:20-cv-05309-PJH Document 90 Filed 10/16/20 Page 2 of 2

United States District Court Northern District of California

1 Form 1040 to class members by October 27, 2020 but in no event later than October 28,

2 2020 and shall use best efforts to effectuate notice prior to this deadline, by for example,

3 mailing packets on a rolling basis rather than at one time. Defendants shall include a

4 cover letter in each mailing to individual correctional facilities notifying officials of the

5 purpose, contents, and timing of the mailed packets they will be receiving and urging

6 them to distribute the contents of the packets to all incarcerated individuals as soon as

7 they arrive. Using their existing electronic channels of communication, defendants shall

8 also transmit instructions to correctional facilities informing officials of the incoming

9 packets, the contents and purpose of the packets, and the need to distribute the

10 materials in the packets in an expeditious manner. The parties may meet and confer on

11 the language for these separate cover letters.

12

As further stated at the hearing, the court ORDERS defendants to extend the

13 deadline for class members to postmark any simplified paper tax returns to no later than

14 November 4, 2020. The court understands that the parties will update the legal notice

15 (Dkt. 86-4) and instructions on completing Form 1040 (Dkt. 86-2) to reflect the deadline

16 extension of November 4, 2020. Finally, the court will hold a status conference to be

17 convened on a date immediately following mailing of the packets. The parties should

18 contact the court’s courtroom deputy to propose dates and times for such status

19 conference.

20

IT IS SO ORDERED.

21 Dated: October 16, 2020

22

/s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

23

United States District Judge

24

25

26

27

28 2

 
 Case 4:20-cv-05309-PJH Document 184 Filed 01/21/21 Page 1 of 2

1

2

3

4

5

6

7

8

UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10

OAKLAND DIVISION

11

12 COLIN SCHOLL and LISA STRAWN, on behalf of themselves and all others
13 similarly situated,

Case No. 4:20-cv-5309-PJH [PROPOSED] FINAL JUDGMENT

14

Plaintiffs,

15 v.

16 STEVEN MNUCHIN, in his official capacity as the Secretary of the U.S.
17 Department of Treasury; CHARLES RETTIG, in his official capacity as U.S.
18 Commissioner of Internal Revenue; U.S. DEPARTMENT OF THE TREASURY;
19 the U.S. INTERNAL REVENUE SERVICE; and, the UNITED STATES OF
20 AMERICA.

21

Defendants.

22

23

24

25

26

27

28

2111994.1

[PROPOSED] FINAL JUDGMENT CASE NO. 4:20-CV-5309-PJH

Case 4:20-cv-05309-PJH Document 184 Filed 01/21/21 Page 2 of 2

1

The Court hereby enters final judgment in this action as between Plaintiffs Colin Scholl

2 and Lisa Strawn, the Class, and Defendants Steven Mnuchin, Charles Rettig, U.S. Department of

3 the Treasury, Internal Revenue Service, and the United States of America (“Defendants”),

4 consistent with the Court’s October 14, 2020 order granting in part and denying in part Plaintiffs’

5 motion for summary judgment and entering a permanent injunction (Dkt. No. 87). This document

6 constitutes a judgment and a separate document for purposes of Federal Rule of Civil Procedure

7 58(a). Without affecting the finality of the Court’s judgment in any way, the Court retains

8 jurisdiction over this matter for purposes of enforcing its October 14, 2020 permanent injunction,

9 and reviewing any motions for attorney’s fees or costs. The Clerk is hereby directed to enter

10 judgment forthwith. The case is closed except for purposes of considering a motion for attorney’s

11 fees and costs, to be filed within 30 days of when this judgment becomes final and not appealable.

12 See 28 U.S.C. §§ 2412(d)(1)(B), 2412(d)(2)(G); Al-Harbi v. I.N.S., 284 F.3d 1080, 1082-83 (9th

13 Cir. 2002).

UNITED S ALIFORNIA

OURT NORTH

14 15 JUDGMENT APPROVED AS TO FORM BY:

TATES DISTRICT C

16

IT IS SO ORDERED

17 Dated: January 21, 2021 18 19

By:Honorable PhyllJuisdgJe .PhHylalismJ. iHlatomnilton United States District Judge
ERN DISTRICT OF C

20 JUDGMENT ENTERED: _J_an_u_a_r_y_2_1__, 2021

21 By: Clerk of the United States District Court for the Northern District of California
22

23

24

25

26

27

28

2111994.1

-1-

[PROPOSED] FINAL JUDGMENT CASE NO. 4:20-CV-5309-PJH

 
 Case 4:20-cv-05309-PJH Document 181 Filed 01/12/21 Page 1 of 1

United States District Court Northern District of California

1

2

3

4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6

7

COLIN SCHOLL, et al.,

8

Plaintiffs,

Case No. 20-cv-05309-PJH

9

v.

10

STEVEN MNUCHIN, et al.,

11

Defendants.

ORDER REQUESTING PROPOSED FORM OF JUDGMENT

12

13

14

On October 14, 2020, the court granted in part and denied in part plaintiffs’ motion

15 for summary judgment. Dkt. 87. The court did not enter a final judgment given that the

16 court ordered defendants to submit status reports regarding their compliance with the

17 court’s permanent injunction. Since the status reports are now complete, the court

18 intends to enter a final judgment. Accordingly, plaintiffs shall submit a proposed form of

19 judgment on or before January 19, 2021. No extension of this deadline will be

20 considered, otherwise the court will issue its own form of judgment.

21

IT IS SO ORDERED.

22 Dated: January 12, 2021

23

/s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

24

United States District Judge

25

26

27

28

 
 Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 1 of 55

1 Edward M. Robbins, Jr.
HOCHMAN SALKIN TOSCHER PEREZ, PC
2 9150 Wilshire Blvd., Suite 300
Beverly Hills, California 90212
3 310.281.3247 (O)
310.859.5129 (F)
4 edr@taxlitigator.com

5 Joseph A. DiRuzzo, III (pro hac vice forthcoming)
DIRUZZO & COMPANY
6 401 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, Florida 33301
7 954.615.1676 (O)
954.827.0340 (F)
8 jd@diruzzolaw.com

9 Counsel for Jamal A. Morton and Araclis N. Ayala, individually and on behalf of all others similarly situated

10

11

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

12 -------------------------------------------------------------------------------------------------------------x

COLIN SCHOLL, et al.,

13

Plaintiff,

:

Case No. 4:20-cv-5309-PJH

:

14

v.

:

NOTICE OF MOTION &

:

MOTION TO INTERVENE

15

:

STEVEN MNUCHIN, et al.,

16

Defendants.

:

Hr’g Date: TBD

:

Hr’g Time: TBD

17 -------------------------------------------------------------------------------------------------------------x

Judge: Hon. Phyllis J. Hamilton

18

19

20

21

22

NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE &

23

DECLARATION OF JOSEPH A. DiRUZZO, III IN SUPPORT

24

25

26

27

28

NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 2 of 55

1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

2

PLEASE TAKE NOTICE that Pursuant to Local Rule 7-1(b), JAMAL A. MORTON and

3 ARACLIS N. AYALA, individually and on behalf of all others similarly situated, respectfully move to 4
intervene as Plaintiffs in the above-captioned litigation without oral argument. Alternatively,
5

6 MORTON and AYALA notice that on Jan. 20, 2021, at 9:00 a.m., before the Hon. Chief District

7 Judge Phyllis J. Hamilton, Oakland Courthouse, Courtroom 3 – 3rd Floor, 1301 Clay Street,

8 Oakland, CA 94612, or as soon thereafter as the Court may order, MORTON and AYALA will and
9 do hereby move for the same relief. 10
This motion is brought pursuant to Federal Rule of Civil Procedure 24. As more fully set forth
11 12 in the accompanying memorandum, the grounds for the motion are: (1) the motion is timely; (2)

13 MORTON, AYALA, and the incarcerated individuals located in the U.S. Territories & Possessions

14 have significant protectable interests in the outcome of this case; (3) the disposition of this action
15 could impede MORTON’s, AYALA’s, and the incarcerated individuals located in the U.S. Territories 16
& Possessions’ ability to protect those interests; (4) the current parties do not adequately represent
17 18 the interests of MORTON, AYALA and the incarcerated individuals located in the U.S. Territories

19 & Possessions; and (5) MORTON’s, AYALA’s, and the incarcerated individuals located in the U.S.

20 Territories & Possessions’ position regarding the CARES Act and the Economic Impact Payments
21 (“EIP”) plainly involves common questions of law and fact with this action, and their direct opposition 22
to Defendants’ position satisfies the “common question” requirement for permissive intervention.
23 24 This motion is based on the supporting memorandum below; the accompanying Affidavit of United

25 States Virgin Islands Bureau of Internal Revenue Director Joel A. Lee, CPA, the position taken by the

26 United States Virgin Islands (the “USVI”) in Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.), and
27 any further papers filed in support of this motion, the argument of counsel, and all pleadings and 28
records on file in this matter.

1 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 3 of 55

1

PLEASE TAKE FURTHER NOTICE that counsel for MORTON and AYALA spoke to

2 counsel for the Defendants, who has indicated that the Defendants object to intervention.

3

PLEASE TAKE FURTHER NOTICE that counsel for MORTON and AYALA spoke to

4

counsel for the Plaintiffs, who has indicated that the Plaintiffs oppose the motion.
5

6

PLEASE TAKE FURTHER NOTICE that MORTON’s and AYALA’s proposed complaint

7 in intervention (without exhibits) is attached.

8

PLEASE TAKE FURTHER NOTICE that MORTON’s and AYALA’s proposed motion for

9 civil contempt (without exhibits) is attached. 10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 4 of 55

1

MEMORANDUM IN SUPPORT

2

BACKGROUND

3 I.

THE INSTANT CASE

4

On August 8, 2020, a class action complaint was filed against the Federal Government

5

contesting the IRS’s position that incarcerated individuals are not eligible for the EIP under the
6

7 CARES Act. Indeed, IRS Chief Counsel Michael J. Desmond provided a declaration in this case,

8 docket no. 44-1, stating that: “incarcerated individuals do not qualify for the advance payments.” Id.

9 at ¶5.

10

On September 24, 2020, this Court granted the Scholl plaintiffs a preliminary injunction and

11

12 class certification. Scholl v. Mnuchin, 2020 WL 5702129 (N.D. Cal. Sept. 24, 2020) (“Scholl I”). On

13 October 14, 2020, this Court entered an order granting in part and denying in part the Scholl

14 plaintiffs’ motion for summary judgement, entered a permanent injunction against the Federal

15 Government, and certified the class for all purposes. Scholl v. Mnuchin, 2020 WL 6065059, at *22

16
(N.D. Cal. Oct. 14, 2020) (“Scholl II”).
17

18

The Federal Government appealed this case to the Ninth Circuit, and moved the Ninth

19 Circuit for an order staying the District Court’s decision pending appeal. See Ninth Cir. case no. 20-

20 17077. The Ninth Circuit denied the motion to stay, concluding that the Federal Government had

21 not “demonstrated a sufficient likelihood of success on appeal to warrant a stay.” Scholl, et al. v.

22
Mnuchin, et al., case no. 20-17077 at ECF No. 9.
23

24

Consequently, the injunction remains in place and is fully operative against the Federal

25 Government and its agents, servants, and persons in active concert with the named defendants. See

26 Fed. R. Civ. P. 65(d) (detailing persons to be bound by injunction order). 27

28

3 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 5 of 55

1 II.

TAXATION IN THE UNITED STATES TERRITORIES & POSSESSIONS

2

A. The Internal Revenue Code

3

The Internal Revenue Code has specific provisions addressing United States taxpayers who

4 reside and have income “sourced” in the Territories and Possessions. For example, 26 U.S.C. § 937 5
addresses residency and sourcing rules regarding the Territories and Possessions. 26 U.S.C. § 932(c)
6

7 requires that USVI residents file their income tax return with, and pay their tax liability to the USVI.

8 26 U.S.C. § 933 addresses bona fide residents of Puerto Rico, requiring the filing of an income tax

9 return with the Puerto Rican tax authority for U.S. citizens residing in Puerto Rico who only received

10 income from sources within Puerto Rico. See generally, IRS Pub. 1321. 11 12 https://www.irs.gov/pub/irs-pdf/p1321.pdf (last accessed 11/21/20).

Available at

13

B. Taxation in the U.S. Territories & Possessions

14

1. The USVI

15

The Naval Service Appropriations Act of 1921, codified at 48 U.S.C. § 1397, provides: “[t]he

16 income-tax laws in force in the United States of America and those which may hereafter be enacted

17 shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds
18 of such taxes shall be paid into the treasuries of said islands.” “This statutory scheme is known as the 19 20 ‘mirror code,’ under which the Internal Revenue Code is applied to the Virgin Islands merely by
21 substituting ‘Virgin Islands’ for ‘United States’ throughout.” Vento v. Dir. of Virgin Islands Bureau of

22 Internal Revenue, 715 F.3d 455, 465 (3d Cir. 2013). Thus, a USVI taxpayer may “not be required to

23 pay taxes to the federal government, so long as she files a territorial tax return that fully reports her

24
income and then fully pays her territorial taxes to the [USVI].” Cooper v. Comm’r, 718 F.3d 216, 219
25 26 (3d Cir. 2013).

27

2. Guam & the Commonwealth of the Northern Mariana Islands (“CNMI”)

28

Similar to the USVI,

4 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 6 of 55

1

the Internal Revenue Code applies in both Guam and the Marianas through a “mirror

image” system under which each jurisdiction administers and collects its own taxes.

2

Citizens or residents of either jurisdiction are required to file only one income tax

return. Under these “mirroring” provisions, either Guam or CNMI is to be substituted

3

wherever “United States” appears in the Internal Revenue Code, unless such

substitution would be “manifestly incompatible” with the Code or Covenant.

4

Holmes v. Dir. of the Dep’t of Revenue & Taxation, Gov’t of Guam, 937 F.2d 481, 483–84 (9th Cir. 1991)

5

6 (cleaned up). See also Sayre & Co. v. Riddell, 395 F.2d 407, 412 (9th Cir. 1968) (“The general conclusion

7 that we draw ... is that Congress intended that Guam should apply the Internal Revenue Code ... just

8 as the United States applies the Code to persons and income within its territory.”). Consequently,

9 “Guam residents do not pay any income tax to the U.S. federal government; instead, they pay a 10
territorial income tax to the government of Guam.” Gumataotao v. Dir. of Dep’t of Revenue & Taxation,
11 12 236 F.3d 1077, 1079 (9th Cir. 2001).

13

3. Puerto Rico

14

While Puerto Ricans pay most of their income taxes to the local tax authority, see 26 U.S.C. §

15 933, supra, the still pay their federal income taxes to the IRS “on income from sources outside Puerto
16 Rico for which they are liable under the Internal Revenue Code, the regular payment of federal 17
income taxes by all federal employees in Puerto Rico, as well as the full Social Security, Medicare, and
18 19 Unemployment Compensation taxes[.]” United States v. Vaello-Madero (1st Cir. 2020) (cleaned up).

20 III. THE CARES ACT IN THE TERRITORIES & POSSESSIONS

21

A. Section 2201 of the CARES Act

22

Section 2201(c)(1) addresses the payments to U.S. Possessions, and states:

23

(A) MIRROR CODE POSSESSION.—The Secretary of the Treasury shall pay to

24

each possession of the United States which has a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the amendments

25

made by this section. Such amounts shall be determined by the Secretary of the Treasury based on information provided by the government of the respective

26

possession.

27

(B) OTHER POSSESSIONS.—The Secretary of the Treasury shall pay to each possession of the United States which does not have a mirror code tax

28

system amounts estimated by the Secretary of the Treasury as being equal to the aggregate benefits (if any) that would have been provided to residents of

such possession by reason of the amendments made by this section if a mirror

5 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 7 of 55

1

code tax system had been in effect in such possession. The preceding sentence shall

not apply unless the respective possession has a plan, which has been approved by the

2

Secretary of the Treasury, under which such possession will promptly distribute such

payments to its residents.

3

CARES Act, § 2201(c)(1)(A)-(B).

4

5

B. The IRS’s Position on the CARES Act in the Territories & Possessions

6

Per the IRS website:

7

Q A3. If I live in Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands, will I get a payment

8

if I’m eligible? (Updated October 26, 2020) A3. In many cases, the answer is yes. But special rules in the law apply to these

9

five U.S. territories (possessions). In general, the tax authorities in each territory will make Payments to eligible residents. If you are a resident of one of these territories with questions about

10

a payment, you should contact your local tax authority. Resident of a U.S Territory: If you receive a Payment from the IRS and a U.S

11

territory tax agency and you are a resident of a U.S. territory for the 2020 tax year, please consult with your U.S. territory tax agency concerning information about an

12

incorrect or duplicate Payment. Not a resident of a U.S. Territory: If you have received a Payment from more

13

than one jurisdiction and you are a not a resident of a U.S. territory for the 2020 tax year, you should return any incorrect or duplicate Payment received from the U.S.

14

territory tax agency to the IRS following the instructions about repayments. Go to Topic I: Returning the Economic Impact Payment for instructions.

15 https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility

16

(last accessed Nov. 21, 2020) (emphasis added), (attached hereto as Exhibit 1 to the Declaration of
17

18 Joseph A. DiRuzzo, III (“JAD Dec.”)).

19 IV. THE USVI CLASS ACTION LITIGATION

20

On October 27, 2020, counsel for Morton sent the Director of the Virgin Islands Bureau of

21 Internal Revenue (“BIR”) correspondence seeking clarification as to whether the BIR shared the same 22
view as the IRS regarding whether the CARES Act in general, and the EIP in particular, applied to
23

24 incarcerated individuals. Attached hereto as Exhibit 2 to JAD Dec.. Counsel for Morton expressed

25 that time was of the essence because the EIP must be issued “as rapidly as possible,” 26 U.S.C. §

26 6428(f)(3), and that “[n]o refund or credit shall be made or allowed under this subsection after
27 December 31, 2020[,]” id. JAD Dec. Exhibit 2 at p. 2. 28
Counsel for Morton received no response to his October 27th correspondence and concluded

6 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 8 of 55

1 that the USVI government took the same position as the Federal Government as to the EIP for

2 incarcerated individuals, i.e., that they are not eligible.

3

Consequently, Morton filed suit, Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.),

4

5 attempting to obtain his EIP. Morton moved for a preliminary injunction, id. at docket no. 5, moved

6 to expedite, id. at docket no. 8, and moved for summary judgment, id. at docket no. 18. The District

7 Court of the Virgin Islands set a hearing on Morton’s preliminary injunction motion for November

8 24th. See id. at docket nos. 30 & 32. 9
On November 20th, the USVI filed its opposition (a copy of which is attached hereto as Exhibit
10 11 3 to JAD Dec.), and attached the affidavit of Director Joel A. Lee, CPA, in support of the opposition
12 (a copy of which is attached hereto as Exhibit 4 to JAD Dec.). Id. at docket nos. 37 & 37-1.

13

Importantly, in the Morton case, the USVI avers that it “merely serve[s] as an intermediary

14 between eligible Virgin Islands taxpayers on the one hand, and U.S. Treasury on the other. [The 15
USVI] take[s] no position on the eligibility of incarcerated persons. [The USVI] merely distribute[s]
16 17 the federal funds we have been provided in accordance with the conditions that are provided by the

18 U.S. Treasury.” JAD Dec. Ex. 3 at p. 2.

19 V.

TREASURY’S “PLAN” WITH THE USVI

20

As detailed in the sworn statement by Director Lee, “the United States Treasury Department

21
has advanced federal funds to the USVI BIR to be used to pay the advanced EIPs pursuant to an EIP
22

23 Implementation Plan (the “Plan”). Treasury considers the Plan confidential and prohibits its

24 disclosure.” Lee Aff. at ¶6.1 The USVI “holds these federal CARES Act funds in trust, pursuant to

25 the Plan authorized by the United States Treasury Department.” Id. at ¶7. “[T]he Plan imposes

26 restrictions upon the USVI BIR’s use of the CARES Act Trust Fund monies.” Id. at ¶8. “[O]ne of 27

28

1 Morton has moved to unseal the Plan. See Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.)

at docket no. 49.

7 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 9 of 55

1 the Plan restrictions is that CARES Act Trust Fund monies cannot be used to pay EIPs to incarcerated

2 persons.” Id. at ¶9 (emphasis added). “[T]he Plan also restricts the USVI BIR’s expenditures of CARES
3 Act Trust Fund monies insofar as no EIPs can be remitted from the CARES Act Trust Fund unless it 4 5 is are [sic] based on a tax return filed by the taxpayer.” Id. at ¶10. “[T]he USVI BIR has not interpreted
6 the CARES Act with respect to eligibility. Instead, EIPs are remitted solely in conformance with the

7 limitations placed on the funds provided by the United States Treasury Department.” Id. at ¶12 (emphasis

8 added).

9
APPLICABLE LAW
10

11

With respect to intervention as of right,

12

[o]n timely motion, the court must permit anyone to intervene who: (1) is given an unconditional right to intervene by a federal statute; or (2) claims an interest relating

13

to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability

14

to protect its interest, unless existing parties adequately represent that interest.

15 Fed. R. Civ. P. 24(a).

16

An applicant seeking to intervene as of right under Rule 24 must demonstrate that

four requirements are met: (1) the intervention application is timely; (2) the applicant

17

has a significant protectable interest relating to the property or transaction that is the

subject of the action; (3) the disposition of the action may, as a practical matter, impair

18

or impede the applicant’s ability to protect its interest; and (4) the existing parties may

not adequately represent the applicant’s interest.
19

20 Citizens for Balanced Use v. Montana Wilderness Ass’n, 647 F.3d 893, 897 (9th Cir. 2011). “[T]he

21 requirements are broadly interpreted in favor of intervention.” Id.

22

With respect to permissive intervention, “[o]n timely motion, the court may permit anyone to

23 intervene who … has a claim or defense that shares with the main action a common question of law 24 or fact.” Fed. R. Civ. P. 24(b)(1). Thus, “permissive intervention requires (1) an independent ground 25 26 for jurisdiction; (2) a timely motion; and (3) a common question of law and fact between the movant’s 27 claim or defense and the main action.” Freedom from Religion Found. v. Geithner, 644 F.3d 836, 843 (9th

28 Cir. 2011).

8 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 10 of 55

1

DISCUSSION

2 I.

INTERVENTION AS OF RIGHT

3

A. The Motion is Timely

4

“Timeliness is determined by the totality of the circumstances facing would-be intervenors[,]”

5 Smith v. Los Angeles Unified Sch. Dist., 830 F.3d 843, 854 (9th Cir. 2016), which is a “nuanced, 6 7 pragmatic approach[.]” League of United Latin Am. Citizens v. Wilson, 131 F.3d 1297, 1303 (9th Cir.

8 1997). See also United States v. Oregon, 745 F.2d 550, 552 (9th Cir. 1984) (listing the three timeliness

9 factors: (1) the stage of the proceeding; (2) the prejudice to other parties, and (3) the reason for and

10 length of the delay; and finding district court abused its discretion in denying intervention in fifteen11
year-old litigation where litigant’s actions and court order implicated changed circumstances); see also
12 13 United States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1182-83 (3d Cir. 1994) (finding intervention in
14 four-year-old litigation timely where intervention was sought 43 days after intervenor became aware

15 its interests were imperiled).

16

Here, the stage of the proceeding is a mere five weeks since the Court permanently enjoined

17
the Federal Government. “[I]n analyzing the ‘stage of the proceedings’ factor, the mere lapse of time
18

19 alone is not determinative.” Smith, 830 F.3d at 854 (cleaned up). Rather, “[w]here a change of

20 circumstances occurs, and that change is the ‘major reason’ for the motion to intervene, the stage of

21 proceedings factor should be analyzed by reference to the change in circumstances, and not the

22 commencement of the litigation.” Id. (citation omitted). The change in circumstance, and sole reason 23
to intervene, is that Morton has just learned of the existence of the Plan, which is the purported
24 25 justification for the Federal Government’s position that territorial incarcerated individuals are not

26 entitled to the EIP.

27

There is no prejudice to the other parties as Morton and Ayala seek the following four

28 remedies from this Court.

9 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 11 of 55

1

First, to enforce compliance of this Court’s injunction on the Federal Government, its agents,

2 servants, and others acting in concert therewith, and to clarify (to the extent needed, though we
3 contend that a reading to the contrary is unsupportable) that the Court’s ruling applies to the Federal 4 5 Government’s treatment of the CARES Act to the U.S. Territories & Possessions. Morton, Ayala, 6 and, indeed, all incarcerated individuals in the U.S. Territories & Possessions had no reason to

7 know/believe that their interests were not being adequately represented, and that the Federal

8 Government would apparently carve out those individuals from the relief that this Court provided
9 (i.e., the permanent injunction). Cf. Smith, 830 F.3d at 857 (“prospective intervenor’s failure to 10 11 intervene after he knew, or reasonably should have known, that his interests were not being adequately
12 represented”). At bottom, there is no prejudice to the Federal Government with complying with the

13 law and this Court’s orders.

14

Second, to have this Court declare that Defendants’ policy of conditioning/restricting funding

15
under Section 2201(c)(1) of the CARES Act (and, in turn, requiring the respective U.S. Territories &
16 17 Possessions to withhold EIP benefits from territorial incarcerated persons based solely on their

18 incarcerated status) exceeds Defendants’ statutory authority under Section 2201(c)(1) of the CARES

19 Act, the Uniformity Clause, viz. U.S. Const. Art. I, § 8, cl. 1, and the Due Process Clause of the Fifth

20 Amendment, and to correspondingly set aside all inconsistent actions that have been or are

21
subsequently taken as void ab initio.
22

23

Third, to have this Court declare that (1) the statutory authority of the CARES Act, under

24 which the respective Plans were purportedly entered into between the Federal Government and the

25 respective U.S. Territories & Possessions, does not allow for delegation; (2) if delegation was

26 authorized, no delegation order existed; and/or (3) because the USVI Plan was not actually signed, it 27
is a legal nullity with no force and effect.
28

10 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 12 of 55

1

Fourth, to have this Court declare that Defendants’ policy of conditioning/restricting funding

2 under Section 2201(c)(1) of the CARES Act on the execution of a Plan under Section 2201(c)(1)(B)
3 to mirror code jurisdictions (for which there is no requirement of a Plan under Section 2201(c)(1)(A)) 4 5 exceeds Defendants’ statutory authority under the Section 2201(c)(1) of the CARES Act (i.e., there is 6 no statutory authority to enter into a Plan), and to correspondingly set aside all inconsistent actions

7 that have been or are subsequently taken as void ab initio.

8

As to the reason and length of delay, Morton and Ayala have moved to intervene just days

9 after the existence of the Plan was disclosed and it became apparent that the Federal Defendants have, 10 11 and continue to, prohibit payment of the EIP to incarcerated individuals in violation of this Court’s

12 injunction. In all events, the instant motion is timely.

13

B. Incarcerated Individuals Located in the U.S. Territories & Possessions Have

Significant Protectable Interests.

14

“To demonstrate a significant protectable interest, an applicant must establish that the interest

15

16 is protectable under some law and that there is a relationship between the legally protected interest

17 and the claims at issue.” Citizens for Balanced Use, 647 F.3d at 897.

18

Morton, Ayala, and, indeed, all incarcerated individuals in the U.S. Territories & Possessions

19 have protectable interests in obtaining their EIP (see 26 U.SC. § 6428(a)) and having the Federal 20
Government comply with Section 2201(c) of the CARES Act, through which Congress mandated
21
22 funding the respective Territories so that they, in turn, can issue the EIP. See CARES Act, Section

23 2201(c)(1)(A)-(B) (“shall pay to each possession”). Thus, Intervenors have a practical interest in this case,

24 while intervention will obviate needless litigation around the country and will allow a voice to be given
25 to the incarcerated individuals in the U.S. Territories & Possessions. Accord Forest Conservation Council 26 27 v. U.S. Forest Serv., 66 F.3d 1489, 1496 n.8 (9th Cir. 1995) (abrogated on other grounds) (“By allowing
28 parties with a practical interest in the outcome of a particular case to intervene, we often prevent or

11 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 13 of 55

1 simplify future litigation involving related issues; at the same time, we allow an additional interested

2 party to express its views before the court.”).

3

C. The Disposition of this Action Could Impede Morton’s and Ayala’s Ability to

4

Protect their (and the Class’s and Sub-Class’s) Interests.

5

“If an absentee would be substantially affected in a practical sense by the determination made

6 in an action, he should, as a general rule, be entitled to intervene.” Southwest Center for Biological

7 Diversity v. Berg, 268 F.3d 810, 822 (9th Cir. 2001). The Ninth Circuit has stated: “[h]aving found 8
that appellants have a significant protectable interest, [the Circuit had] little difficulty concluding that
9 10 the disposition of th[e] case may, as a practical matter, affect it.” California ex rel. Lockyer v. United States,

11 450 F.3d 436, 442 (9th Cir. 2006). Morton and Ayala are affected in a very real sense insofar as the

12 Federal Government apparently has carved out incarcerated individuals in the U.S. Territories &

13 Possessions from its response to this Court’s injunction and effectively denied Morton and Ayala the

14
benefits of their EIP.
15

16

D. The Parties Do Not Adequately Represent the Interests of the Incarcerated Individuals Located in the U.S. Territories & Possessions.

17

As a threshold matter, the fourth element of Rule 24(a) intervention requires only a “minimal”

18
showing that existing parties’ representation “may be” inadequate.” Trbovich v. United Mine Workers
19 20 of Am., 404 U.S. 528, 538 n. 10 (1972). In evaluating adequacy of representation, courts examine

21 three factors: “(1) whether the interest of a present party is such that it will undoubtedly make all of a

22 proposed intervenor’s arguments; (2) whether the present party is capable and willing to make such

23 arguments; and (3) whether a proposed intervenor would offer any necessary elements to the
24
proceeding that other parties would neglect.” Citizens for Balanced Use, 647 F.3d at 898. Here, all
25 26 three factors militate towards finding inadequacy of representation.

27

First, Morton, Ayala, and the incarcerated individuals in the U.S. Territories & Possessions

28 have arguments that are unique under the CARES Act that have not been made by the class that this

12 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 14 of 55

1 Court certified (i.e., under Section 2201(c)(1)). Second, Morton and Ayala believe that the as-certified

2 class may be precluded from raising facts and arguments in that they lack Article III standing and/or
3 may have waived such arguments by failing to bring such to the Court’s attention in the first instance. 4 5 Third, Morton and Ayala contend that they bring a necessary element and/or injury to this case as
6 they are litigants with Article III standing (which is also ripe), for the Court’s consideration. To that

7 end, Plaintiffs have appeared to neglect to make the arguments that Morton and Ayala are now

8 advancing regarding the U.S. Territories & Possessions.

9 II. 10

ALTERNATIVELY, THE COURT SHOULD PERMIT PERMISSIVE INTERVENTION UNDER RULE 24(b).

11

Even if this Court does not grant intervention as of right, the Court should permit Morton

12 and Ayala, the Class, and the Sub-Class leave to intervene permissively pursuant Rule 24(b). “A party

13 seeking permissive intervention ... must establish a basis for federal subject matter jurisdiction 14
independent of the court’s jurisdiction over the underlying action.” EEOC v. Nevada Resort Assoc., 792
15 16 F.2d 882, 886 (9th Cir. 1986). As demonstrated in the accompanying complaint in intervention, this

17 Court has independent federal question jurisdiction regarding each of Morton’s and Ayala’s APA

18 claims, CARES Act claims, and constitutional claims.

19

As to timeliness, see Freedom from Religion Found, 644 F.3d at 843, for the same reasons that

20
this motion was timely under a Rule 24(a) analysis, it is likewise timely under Rule 24(b).
21

22

As to common questions of fact and law, see Freedom from Religion Found, 644 F.3d at 843, such

23 is clearly present. Morton’s and Ayala’s claim that the Federal Government’s position vis-à-vis the

24 CARES Act, in general, and the EIP, in particular, is (similar to the claim of incarcerated individuals
25 located in the Several States) unlawful. 26
In sum, all three factors for permissive intervention have been met.
27

28

13 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 15 of 55

1

Finally, in addition to the three prerequisites for permissive intervention outlined, supra,

2 practical and equitable considerations play a large role in a court’s decision to grant or deny permissive
3 intervention. See Spangler v. Pasadena City Bd. Of Ed., 552 F.2d 1326, 1329 (9th Cir. 1977). As such, 4 5 whether an intervenor’s presence would prejudice the parties or delay the litigation, and whether the
6 intervenor would contribute to the development of the facts and the equitable adjudication of the

7 legal questions, are important considerations. Spangler, 552 F.2d at 1329 (citation omitted).

8 Ultimately, “the requirements for intervention are broadly interpreted in favor of intervention.”

9
United States v. Aerojet Gen. Corp., 606 F.3d 1142, 1148 (9th Cir. 2010) (cleaned up).

10

11

As stated above, there is no undue delay and intervention will not prejudice any existing party.

12 Importantly, Morton and Ayala submit that they will contribute to the development of the facts and

13 equitable adjudication as to the Federal Government’s position regarding incarcerated individuals in

14 the U.S. Territories & Possessions. This Court should exercise its considerable discretion to permit 15
intervention, which will, in turn, facilitate the orderly resolution of the unique issues Morton’s and
16 17 Ayala’s facts present as applied to the CARES Act and the EIP.
18 //

19 //

20 // 21
//
22 23 //
24 //

25 //

26 //
27
//
28
//

14 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 16 of 55

1

CONCLUSION

2

WHERFORE, based on the foregoing, Morton and Ayala respectfully move this Court to

3 grant the motion in full. 4
Respectfully Submitted,
5

6

By: /s/ Edward M. Robbins, Jr. Edward M. Robbins, Jr.

7

California Bar No. 82696 HOCHMAN SALKIN TOSCHER PEREZ, PC

8

9150 Wilshire Blvd., Suite 300 Beverly Hills, California 90212

9

310.281.3247 (O) 310.859.5129 (F)

10 edr@taxlitigator.com

Dated Dec. 11, 2020

11

By: /s/Joseph A. DiRuzzo, III Joseph A. DiRuzzo, III

12

Fla. Bar No. 0619175 DIRUZZO & COMPANY

13

401 East Las Olas Blvd., Suite 1400 Ft. Lauderdale, Florida 33301

14

954.615.1676 (O) 954.827.0340 (F)

15 jd@diruzzolaw.com

Dated Dec. 11, 2020

16

17

CERTIFICATE OF SERVICE

18

I hereby certify that I electronically filed the foregoing Notice of with the Clerk of Court using the CM/ECF system, which will send a notification of such filing (NEF) to counsel of record.

19

20

By: /s/ Edward M. Robbins, Jr. Edward M. Robbins, Jr.

Dated Dec. 11, 2020

21

22

23

24

25

26

27

28

15 NOTICE OF MOTION, MOTION FOR LEAVE TO INTERVENE & DECLARATION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 17 of 55 Proposed Complaint in Intervention

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 18 of 55

1 Edward M. Robbins, Jr.
HOCHMAN SALKIN TOSCHER PEREZ, PC
2 9150 Wilshire Blvd., Suite 300
Beverly Hills, California 90212
3 310.281.3247 (O)
310.859.5129 (F)
4 edr@taxlitigator.com

5 Joseph A. DiRuzzo, III (pro hac vice forthcoming)
DIRUZZO & COMPANY
6 401 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, Florida 33301
7 954.615.1676 (O)
954.827.0340 (F)
8 jd@diruzzolaw.com

9 Counsel for Jamal A. Morton and Araclis N. Ayala, individually and on behalf of all others similarly situated

10

11

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

12 -------------------------------------------------------------------------------------------------------------x

COLIN SCHOLL, et al.,

13

Plaintiff,

:

Case No. 4:20-cv-5309-PJH

:

14 JAMAL A. MORTON and ARACLIS N. AYALA,

: :

CLASS ACTION COMPLAINT IN INTERVENTION

15 on behalf of themselves and all others

:

similarly situated,

:

16

Intervenors,

:

17

v.

: :

18 STEVEN MNUCHIN, et al.,

:

Defendants.

:

19 -------------------------------------------------------------------------------------------------------------x

20

CLASS ACTION COMPLAINT IN INTERVENTION

21

22

23

24

25

26

27

28

CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 19 of 55

1

INTERVENORS, JAMAL A. MORTON and ARACLIS N. AYALA, by and through their

2 undersigned attorneys, allege as follows:

3 4
1.
5

NATURE OF THE CASE & INTRODUCTION This case is brought on behalf of persons who have been incarcerated under the custody of

6 the U.S. Territories & Possessions (i.e., the United States Virgin Islands (“USVI”), Guam, the

7 Commonwealth of the Northern Mariana Islands (“CNMI”), Puerto Rico, and American Samoa) at

8 any time from March 27, 2020 to the present (“territorial incarcerated persons” or “territorial
9 incarcerated people”) to challenge Defendants’ (A) unauthorized and unlawful withholding of 10
funding under Section 2201(c)(1) of the Coronavirus Aid, Relief, and Economic Security (“CARES”)
11 12 Act and (B) imposition of blanket restrictions on all of the U.S. Territories & Possessions restricting

13 CARES Act Trust Fund monies from being used to pay Economic Impact Payments (“EIP”), see 26

14 U.S.C. § 6428, to incarcerated people.

15 16 17 2.

JURISDICTION, VENUE, & STANDING This Court has jurisdiction over this action pursuant to 5 U.S.C. § 702, 28 U.S.C. §§ 1331,

18 2201, and 2202.

19 3. Venue is proper under 28 U.S.C. § 1391 in this Court as at least one of the Defendants resides

20 in this venue.

21 4.

MORTON has Article III standing as he is being deprived of the EIP that he is statutorily

22

23 eligible for under 26 U.S.C. § 6428.

24 5.

AYALA has Article III standing as she is being deprived of the EIP that she is statutorily eligible

25 for under 26 U.S.C. § 6428.

26

27

28

1 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 20 of 55

1

THE PARTIES

2 6. MORTON is an American citizen, a USVI resident under 26 U.S.C. §§ 932(c) and 937, and
3 is not claimed as a dependent on anyone else’s tax return. MORTON has been continuously under 4
the custody of the USVI since 2009, and is being held in custody at the Golden Grove Correctional
5 6 Facility on St. Croix, USVI. MORTON has yet to receive his EIP from the USVI.

7 7. AYALA is an American citizen, a Puerto Rican resident under 26 U.S.C. §§ 933 and 937, and

8 is not claimed as a dependent on anyone else’s tax return. AYALA has been continuously under the

9 custody of the federal government since 2016, and is being held in federal custody by the Bureau of 10
Prisons at MDC Guaynabo on Puerto Rico. AYALA has yet to receive her EIP from Puerto Rico.
11

12 8.

Defendant Steven T. Mnuchin is the Secretary of the Treasury. As such, Defendant Mnuchin

13 exercises full authority to administer and enforce the internal revenue laws and has the power to create

14 an agency to enforce these laws. He is responsible for distributing the EIPs under the CARES Act

15 and, in his official capacity, has unlawfully withheld EIP benefits from incarcerated individuals.

16

9.
17

Defendant Charles Rettig is the United States Commissioner of Internal Revenue Service. In

18 that capacity, he administers the application of the internal revenue laws. Defendant Rettig reports to

19 Defendant Mnuchin and, as part of his duties, oversees the issuance of EIP benefits under the CARES

20 Act. In his official capacity, he has unlawfully withheld EIP benefits from incarcerated individuals.
21 10. Defendant U.S. Department of the Treasury is an agency of the United States government. 22
The Department of the Treasury is responsible for, among other things, the disbursement of payments
23 24 to the American public, including under the CARES Act. The U.S. Department of the Treasury has

25 unlawfully withheld EIP benefits from incarcerated individuals.

26 11. Defendant U.S. Internal Revenue Service (“IRS”) is a bureau of the U.S. Department of the
27 Treasury organized to carry out the responsibilities of the Secretary of the Treasury under 26 U.S.C. 28
§ 7801. It was created based on the legislative grant of authority to the Secretary of the Treasury to

2 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 21 of 55

1 enforce the internal revenue laws. The IRS calculates and sends recovery payments to eligible persons

2 under the CARES Act.

3 12. Defendant United States of America is sued through its agencies, the U.S. Department of the 4
Treasury, and U.S. Internal Revenue Service.
5

6

BACKGROUND

7 THE CARES ACT

8 13. Beginning in early 2020, the novel coronavirus pandemic created a severe economic hardship
9 on millions of Americans. To address this economic crisis, Congress passed and President Trump 10 11 signed into law the CARES Act. See Pub. L. 116-136, 134 Stat. 281 (Mar. 27, 2020). 12 14. Under the CARES Act, eligible individuals may receive an EIP – a payment of up to $1,200

13 (or $2,400 in the case of eligible individuals filing a joint return), plus $500 for each qualifying child.

14 26 U.S.C. § 6428(a). The amount of the credit may be adjusted based on an individual’s adjusted
15 gross income. Id. § 6428(c). 16 17 15. The CARES Act defines eligibility for an EIP broadly. The statute defines “eligible individual”
18 to include “any individual other than—(1) any non-resident alien individual, (2) any individual with

19 respect to whom a deduction under section 151 is allowable to another taxpayer . . ., and (3) an estate

20 or trust.” 26 U.S.C. § 6428(d). Congress did not impose any other status-based limitations on the
21 definition of “eligible individual” under 26 U.S.C. § 6428(d). 22 23 16. The CARES Act applies to the U.S. Territories & Possessions.
24 17. Pursuant to the CARES Act, Defendants are required to issue EIP benefits “as rapidly as

25 possible.” 26 U.S.C. § 6428(f)(3)(A).

26 18. Section 2201(c)(1) of the CARES Act addresses the payments to U.S. Territories &
27 Possessions, and states: 28

3 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 22 of 55

1

(A) MIRROR CODE POSSESSION.—The Secretary of the Treasury shall pay

to each possession of the United States which has a mirror code tax system

2

amounts equal to the loss (if any) to that possession by reason of the amendments

made by this section. Such amounts shall be determined by the Secretary of the

3

Treasury based on information provided by the government of the respective

possession.

4

(B) OTHER POSSESSIONS.—The Secretary of the Treasury shall pay to

5

each possession of the United States which does not have a mirror code tax

system amounts estimated by the Secretary of the Treasury as being equal to

6

the aggregate benefits (if any) that would have been provided to residents of

such possession by reason of the amendments made by this section if a mirror

7

code tax system had been in effect in such possession. The preceding sentence shall

not apply unless the respective possession has a plan, which has been approved by the

8

Secretary of the Treasury, under which such possession will promptly distribute such

payments to its residents.

9

CARES Act, § 2201(c)(1)(A)-(B).

10
THE IRS’S POSITION ON THE CARES ACT IN THE TERRITORIES & POSSESSION
11

12 19. Per the IRS website, a copy of which is attached hereto as Exhibit 1:

13

Q A3. If I live in Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands, will I get a payment if I’m eligible?

14

(Updated October 26, 2020)

15

A3. In many cases, the answer is yes. But special rules in the law apply to these five U.S. territories (possessions). In general, the tax authorities in each territory will make

16

Payments to eligible residents. If you are a resident of one of these territories with questions about a payment, you should contact your local tax authority.

17

Resident of a U.S Territory: If you receive a Payment from the IRS and a U.S territory

18

tax agency and you are a resident of a U.S. territory for the 2020 tax year, please consult with your U.S. territory tax agency concerning information about an incorrect or

19

duplicate Payment.

20

Not a resident of a U.S. Territory: If you have received a Payment from more than one jurisdiction and you are a not a resident of a U.S. territory for the 2020 tax year, you

21

should return any incorrect or duplicate Payment received from the U.S. territory tax agency to the IRS following the instructions about repayments. Go to Topic I:

22

Returning the Economic Impact Payment for instructions.

23 https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility

24 (last accessed Nov. 21, 2020) (emphasis added).

25 THE INSTANT CLASS ACTION LITIGATION

26
20.
27

On August 8, 2020, a class action complaint was filed against the Federal Government

28 contesting the IRS’s position that incarcerated individuals are not eligible for the EIP under the

CARES Act. Docket no. 1.

4 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 23 of 55

1 21. Indeed, IRS Chief Counsel Michael J. Desmond provided a declaration in this case, docket

2 no. 44-1 stating that: “incarcerated individuals do not qualify for the advance payments.” Id. at ¶5.
3 22. On September 24, 2020, this Court granted the Scholl plaintiffs a preliminary injunction and 4 5 class certification. Scholl v. Mnuchin, 2020 WL 5702129 (N.D. Cal. Sept. 24, 2020) (“Scholl I”). The
6 Scholl class was provisionally certified as:

7

All United States citizens and legal permanent residents who:

8

(a) are or were incarcerated (i.e., confined in a jail, prison, or other penal institution

or correctional facility pursuant to their conviction of a criminal offense) in the United

9

States, or have been held to have violated a condition of parole or probation imposed

under federal or state law, at any time from March 27, 2020 to the present;

10

(b) filed a tax return in 2018 or 2019, or were exempt from a filing obligation because

11

they earned an income below $12,000 (or $24,400 if filing jointly) in the respective

tax year;

12

(c) were not claimed as a dependent on another person’s tax return; and

13

(d) filed their taxes with a valid Social Security Number, and, if they claimed qualifying

14

children or filed jointly with another person, those individuals also held a valid Social

Security Number.

15

Excluded from the class are estates and trusts; defendants; the officers, directors, or

16

employees of any defendant agency; and, any judicial officer presiding over this action

and his/her immediate family and judicial staff.

17

Id. at *25.
18

19 23. On October 14, 2020, this Court entered an order granting in party and denying in part the

20 Scholl plaintiffs’ motion for summary judgement, denied the Federal Government motion to stay,

21 entered a permanent injunction against the Federal Government, and certified the class for all 22 purposes. Scholl v. Mnuchin, 2020 WL 6065059, at *22 (N.D. Cal. Oct. 14, 2020) (“Scholl II”). 23 24 24. The Defendants in this case take the position that the permanent injunction neither applies 25 to the U.S. Territories & Possessions, nor applies to the respective Plans the Defendants have with

26 the U.S. Territories & Possessions.

27 THE USVI CLASS ACTION LITIGATION 28 25. On October 27, 2020, counsel for MORTON sent Joel Lee, CPA (the Director of the USVI

5 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 24 of 55
1 Bureau of Internal Revenue (“BIR”) (i.e., the USVI’s version of the IRS)) correspondence seeking
2 clarification as to whether the USVI shares the same view as the IRS regarding the CARES Act in 3 general, and the EIP in particular, as applied to incarcerated individuals. A copy of the October 27th 4
correspondence is attached as Exhibit 2.
5 6 26. Counsel for MORTON expressed that time was of the essence because the EIP must be issued
7 “as rapidly as possible,” 26 U.S.C. § 6428(f)(3), and that “[n]o refund or credit shall be made or
8 allowed under this subsection after December 31, 2020[,]” id. Exhibit 2 at p. 2. 9 27. Counsel for MORTON received no response to his October 27th correspondence, and 10 11 concluded that the USVI took the same position as the Federal Government as to the EIP for 12 incarcerated individuals, i.e., that incarcerated individuals are not eligible.
13 28. Consequently, Morton filed suit, Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.),
14 attempting to obtain his EIP. Morton moved for a preliminary injunction, id. at docket no. 5, moved 15
to expedite, id. at docket no. 8, and moved for summary judgment, id. at docket no. 18.
16 17 29. The District Court of the Virgin Islands set a hearing on Morton’s preliminary injunction 18 motion for November 24th. See id. at docket nos. 30 & 32.
19 30. On November 20th, the USVI filed its opposition (a copy of which is attached hereto as Exhibit
20 3), attaching the affidavit of Director Joel A. Lee, CPA, in support of the opposition (a copy of which 21
is attached hereto as Exhibit 4. Id. at docket nos. 37 & 37-1.
22 23 31. Importantly, in the Morton case, the USVI avers that it “merely serve[s] as an intermediary 24 between eligible Virgin Islands taxpayers on the one hand, and U.S. Treasury on the other. [The
25 USVI] take[s] no position on the eligibility of incarcerated persons. [The USVI] merely distribute[s] 26 the federal funds we have been provided in accordance with the conditions that are provided by the 27
U.S. Treasury.” Ex. 3 at p. 2.
28
32. An evidentiary hearing was held on November 24, 2002, before the District Court of the
6 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 25 of 55

1 Virgin Islands. At the November 24th hearing, the USVI took the position (and maintains the

2 position) that it cannot pay EIP to incarcerated individuals because the Plan prevents such and that

3 the Defendants have withheld funding from the USVI to issue EIPs to incarcerated individuals.

4
33.
5

At the November 24th hearing, Director Joel A. Lee testified that each U.S. Territory and

6 Possession has its own respective “Plan” with the federal government.

7 34. A copy of the Defendants’ unsigned Plan with the USVI was provided to MORTON’s counsel

8 in open court, which the USVI acknowledges is the final plan notwithstanding the fact that it was not

9 signed by any individual representing either the Federal Government or the USVI Government. 10 11 CLASS ALLEGATIONS

12

U.S. Territories & Possessions Class

13 35. AYALA and MORTON bring this action on behalf of themselves and all others similarly

14 situated (the “U.S. Territories & Possessions Class”), pursuant to Federal Rule of Civil Procedure 23.

15 The U.S. Territories & Possessions Class is defined as follows:

16

All residents of the U.S. Territories & Possessions who:
17

(a) are or were incarcerated (i.e., confined in a jail, prison, or other penal institution

18

or correctional facility pursuant to their conviction of a criminal offense) under the

custody and control of the respective Territories and Possessions, or have been held to

19

have violated a condition of parole or probation imposed under federal, state, or

territorial law, at any time from March 27, 2020 to the present;

20

(b) filed a tax return in 2018 or 2019, or were exempt from a filing obligation under

21

applicable territorial/possession law in the respective tax year;

22

(c) were not claimed as a dependent on another person’s tax return; and

23

(d) filed their taxes with a valid Social Security Number, and, if they claimed qualifying

children or filed jointly with another person, those individuals also held a valid Social

24

Security Number.

25

Excluded from the class are estates and trusts; Defendants; the officers, directors, or

employees of any of Defendants’ agencies; and, any judicial officer presiding over this

26

action and his/her immediate family and judicial staff.

27 36. The exact size of the U.S. Territories & Possessions Class is unknown but, upon information

28 and belief, the number of individuals incarcerated in the U.S. Territories & Possessions is well in

7 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 26 of 55
1 excess of 1000 and could very well be in excess of a ten thousand. Thus, joinder of that many people
2 is impractical. 3 37. There are multiple questions of law and fact common to the class including but not limited 4
to: (A) whether Defendants have unlawfully withheld, delayed, or restricted delivery of Section
5 6 2201(c)(1) funding to the U.S. Territories & Possessions; (B) whether, in turn, the Defendants
7 unlawfully withheld, delayed, or restricted delivery of benefits to Plaintiffs and the U.S. Territories
8 & Possessions Class; (C) whether Defendants’ policy treating incarcerated people as ineligible for EIP 9 benefits based on their incarcerated status is ultra vires, contrary to law, in excess of statutory authority, 10 11 and/or arbitrary and capricious; (D) whether Defendants violated the CARES Act by requiring the 12 U.S. Territories & Possessions to withhold EIP checks from Plaintiffs and the U.S. Territories &
13 Possessions Class based solely on their status as territorial incarcerated people; (E) whether Defendants
14 are liable to the Plaintiffs and the U.S. Territories & Possessions Class for the sum of the EIP benefits 15 to which they are entitled under the CARES Act; (F) whether an unsigned Plan has any legal force 16 17 and effect; (G) whether the Assistant Secretary for Tax Policy has the authority to sign any Plan; and 18 (H) the remedies to which the Plaintiffs and the U.S. Territories & Possessions Class are entitled.
19 38. These and other questions of law and fact are common to the U.S. Territories & Possessions
20 Class, and predominate over any questions affecting only individual members of the sub-Class. 21 39. AYALA’s and MORTON’s respective claims are typical of the U.S. Territories & Possessions 22 23 Class, as all Class Members challenge Defendants’ authority to require the U.S. Territories and 24 Possessions to withhold EIP checks from them on the sole basis of their status as incarcerated people.
25 The answer to this question is the same for all members of the U.S. Territories & Possessions Class.
26 There are no defenses of a unique nature that may be asserted against the Plaintiffs individually, as 27 distinguished from other members of the U.S. Territories & Possessions Class, and the relief sought 28
is common to the U.S. Territories & Possessions Class.
8 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 27 of 55

1 40. Plaintiffs will fairly and adequately protect the interests of the members of the Class. Plaintiffs’

2 interests are aligned with, and not antagonistic to, those of the other members of the U.S. Territories
3 & Possessions Class, and the Plaintiffs have retained counsel competent and experienced in the 4
prosecution of class action litigation to represent them and the U.S. Territories & Possessions Class.
5 6 41. Certification of the class for injunctive relief is appropriate under Fed. R. Civ. P. 23(b)(1)

7 because the prosecution of separate actions by individual class members would create a risk of

8 inconsistent or varying adjudications that would establish incompatible standards of conduct for
9 Defendants, or would, as a practical matter, be dispositive of the interests of other class members not 10
parties to the individual adjudications, or would otherwise substantially impair or impede their ability
11 12 to protect their interests. Certification for injunctive and declaratory relief is also appropriate under

13 Rule 23(b)(2) because Defendants have acted on grounds that apply generally to the whole sub-Class.

14 42. Additionally, certification of a class for monetary relief is appropriate under Fed. R. Civ. P.
15 23(b)(l) and/or 23(b)(2) and/or 23(c)(4) because the common questions of fact and law predominate 16
over questions specific to individual class members. The common questions of law will determine
17 18 Defendants’ liability to every member of the U.S. Territories & Possessions Class. Class-wide

19 treatment of these common issues in a single forum is a superior means of determining Defendants’

20 liability to each U.S. Territories & Possessions Class Member than potentially hundreds if not

21 thousands of other lawsuits. As a result, class-wide adjudication of Defendants’ liability is the most 22
efficient means of adjudication.
23

24

Mirror Code Sub-Class

25 43. MORTON brings this action on behalf of himself and all others similarly situated (the “Mirror

26 Code Sub-Class”), pursuant to Federal Rule of Civil Procedure 23. The Mirror Code Sub-Class is
27 defined as follows: 28
All residents of the U.S. Territories & Possessions in a mirror code jurisdiction who:

9 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 28 of 55

1 2 3 4 5 6 7 8 9 10 11
44.
12

(a) are or were incarcerated (i.e., confined in a jail, prison, or other penal institution or correctional facility pursuant to their conviction of a criminal offense) under the custody and control of the respective Territories and Possessions, or have been held to have violated a condition of parole or probation imposed under federal, state, or territorial law, at any time from March 27, 2020 to the present; (b) filed a tax return in 2018 or 2019, or were exempt from a filing obligation because they earned an income below $12,000 (or $24,400 if filing jointly) in the respective tax year; (c) were not claimed as a dependent on another person’s tax return; and (d) filed their taxes with a valid Social Security Number, and, if they claimed qualifying children or filed jointly with another person, those individuals also held a valid Social Security Number. Excluded from the class are estates and trusts; Defendants; the officers, directors, or employees of any of Defendants’ agencies; and, any judicial officer presiding over this action and his/her immediate family and judicial staff. The exact size of the Mirror Code Sub-Class is unknown but, upon information and belief,

13 the number of individuals incarcerated in the U.S. Territories & Possessions in mirror code

14 jurisdictions is well in excess of 250 and could very well be in excess of a five hundred. Thus, joinder

15 of that many people is impractical.

16 45. There are discrete questions of law and fact common to the Mirror Code Sub-Class including 17
but not limited to: (A) whether Defendants have lawfully imposed a Plan under Section 2201(c)(1)(B)
18 19 on mirror code jurisdictions; and (B) whether the Defendants can lawfully restrict funding under
20 Section 2201(c)(1) on the execution of a Plan under purported authority of Section 2201(c)(1)(B) to

21 mirror code jurisdictions governed by Section 2201(c)(1)(A).

22 46. These and other questions of law and fact are common to the Mirror Code Sub-Class and 23
predominate over any questions affecting only individual members of the Mirror Code Sub-Class.
24 25 47. MORTON’s claims are typical of the Mirror Code Sub-Class, as all Mirror Code Sub-Class
26 Members challenge Defendants’ authority to impose a Plan under Section 2201(c)(1)(B) on mirror

27 code jurisdictions and whether the purported Plan has any legal force and effect. There are no defenses

28 of a unique nature that may be asserted against MORTON individually, as distinguished from other

10 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 29 of 55
1 members of the Mirror Code Sub-Class, and the relief sought is common to the Mirror Code Sub2 Class. 3 48. MORTON will fairly and adequately protect the interests of the members of the Mirror Code 4
Sub-Class. MORTON’s interests are aligned with, and not antagonistic to, those of the other
5 6 members of the Mirror Code Sub-Class, and MORTON has retained counsel competent and 7 experienced in the prosecution of class action tax litigation to represent himself and the Mirror Code 8 Sub-Class. 9 49. Certification of the class for injunctive relief is appropriate under Fed. R. Civ. P. 23(b)(1) 10
because the prosecution of separate actions by individual class members would create a risk of
11 12 inconsistent or varying adjudications that would establish incompatible standards of conduct for 13 Defendants, or would, as a practical matter, be dispositive of the interests of other class members not 14 parties to the individual adjudications, or would otherwise substantially impair or impede their ability 15 to protect their interests. Certification for injunctive and declaratory relief is also appropriate under 16
Rule 23(b)(2) because Defendants have acted on grounds that apply generally to the whole sub-Class.
17 18 50. Additionally, certification of a class for monetary relief is appropriate under Fed. R. Civ. P. 19 23(b)(l) and/or 23(b)(2) and/or 23(c)(4) because the common questions of fact and law predominate 20 over questions specific to individual class members. The common questions of law will determine 21 Defendants’ liability to every member of the Mirror Code Sub-Class. Class-wide treatment of these 22
common issues in a single forum is a superior means of determining Defendants’ liability to each
23 24 Mirror Code Sub-Class Member than potentially hundreds of other lawsuits. As a result, class-wide 25 adjudication of Defendants’ liability is the most efficient means of adjudication. 26 27 28
11 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 30 of 55

1

CLAIMS FOR RELIEF

2

COUNT 1

3

Defendants’ Policy of Conditioning Funding of Section 2201(c)(1) of the CARES Act on Incarcerated Status is Ultra Vires, Contrary to Law, in Excess of Statutory Authority, and is

4

Arbitrary & Capricious (Administrative Procedure Act (“APA”) violation, 5 U.S.C. §§ 702 & 706(2))

5 51. Paragraphs 1 through 50 are realleged and incorporated herein.

6 52. MORTON, AYALA, and the U.S. Territories & Possessions Class are all eligible for EIP 7
benefits pursuant to the CARES Act because they meet the statutory requirements.
8

9 53. Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the

10 CARES Act (and, in turn, requiring the respective U.S. Territories & Possessions to withhold EIP

11 benefits from territorial incarcerated persons based solely on their incarcerated status) exceeds
12 Defendants’ statutory authority under the Section 2201(c)(1) of the CARES Act, which is ultra vires, 13 14 contrary to law, arbitrary and capricious, or otherwise unlawful within the meaning of the APA, 5 15 U.S.C. § 706(2).

16 54. Defendants’ policy of treating territorial incarcerated people differently from incarcerated

17 people in the Several States violates the Uniformity Clause, viz. U.S. Const. Art. I, § 8, cl. 1, and is
18
ultra vires, contrary to law, arbitrary and capricious, or otherwise unlawful within the meaning of the
19 20 APA, 5 U.S.C. § 706(2).
21 55. Defendants’ policy of treating territorial incarcerated people differently from incarcerated

22 people in the Several States violates the Due Process Clause of the Fifth Amendment, see Bolling v.

23 Sharpe, 347 U.S. 497, 499 (1954); U.S. Dep’t of Agric. v. Moreno, 413 U.S. 528, 533 (1973), and is ultra
24
vires, contrary to law, arbitrary and capricious, or otherwise unlawful within the meaning of the APA,
25 26 5 U.S.C. § 706(2).

27 56. Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the

28 CARES Act (and, in turn, requiring the respective U.S. Territories & Possessions to withhold EIP

12 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 31 of 55

1 benefits from territorial incarcerated persons based solely on their incarcerated status) must be held

2 to be unlawful and set aside under 5 U.S.C. § 706(2).
3 57. MORTON, AYALA, and the U.S. Territories & Possessions Class have been aggrieved by 4
Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the CARES Act
5 6 (and requiring the respective U.S. Territories & Possessions to withhold EIP benefits from territorial

7 incarcerated persons based solely on their incarcerated status) because they have been denied a

8 statutory benefit to which they are otherwise entitled.
9 58. Defendants’ refusal to authorize EIP benefits under the terms of the respective “Plans” to 10
territorial incarcerated persons reflects Defendants’ final, considered position, as evidenced by, among
11 12 other things, the attached affidavit of Joel Lee. Ex. 4. This policy embodied in the respective Plans

13 constitutes final administrative action under 5 U.S.C. § 704.

14 59. Based on the foregoing allegations, MORTON, AYALA, and the U.S. Territories &
15 Possessions Class seek monetary relief in an amount equal to each U.S. Territories & Possessions 16
Class Member’s benefit under the CARES Act and an order compelling Defendants to cause their
17 18 agents to issue EIP benefits to MORTON, AYALA, and U.S. Territories & Possessions Class.

19 60. In the alternative, based on the foregoing violations, MORTON, AYALA, and the U.S.

20 Territories & Possessions Class request injunctive relief ordering Defendants to (1) remove any
21 condition from the respective “Plans” that condition funding under Section 2201(c)(1) of the CARES 22
Act based on incarcerated status, and (2) withdraw any statements/directives/orders, etc. (including
23 24 but not limited to statements/directives/orders made to the respective U.S. Territories & Possession)

25 which direct that incarcerated individuals are not entitled to CARES Act funds.

26

COUNT 2

27

Declaration that Defendants’ Actions Violate the Due Process Clause and the Uniformity Clause of the U.S. Constitution (as applied challenge)

28 61. Paragraphs 1 through 50 are realleged and incorporated herein.

13 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 32 of 55
1 62. MORTON, AYALA, and the U.S. Territories & Possessions Class are eligible for EIP benefits
2 pursuant to the CARES Act because they meet the statutory requirements. 3 63. Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the 4
CARES Act (and, in turn, requiring the respective U.S. Territories & Possessions to withhold EIP
5 6 benefits from territorial incarcerated persons based solely on their incarcerated status) exceeds 7 Defendants’ statutory authority under both Section 2201(c)(1) of the CARES Act, which deprives
8 MORTON, AYALA, and the U.S. Territories & Possessions Class of due process of law (and 9 specifically of equal protection) by creating a de facto legislative classification that the Defendants 10 11 lacked the authority to create, i.e., which is ultra vires. 12 64. Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the
13 CARES Act and, in turn, requiring the respective U.S. Territories & Possessions to withhold EIP
14 benefits from territorial incarcerated persons based solely on their incarcerated status exceeds 15 Defendants’ statutory authority under the Section 2201(c)(1) of the CARES Act, which deprives 16 17 MORTON, AYALA, and U.S. Territories & Possessions Class of their rights under the U.S. 18 Constitution and is prohibited by the Uniformity Clause by causing taxes (i.e. Section 2201 of the
19 CARES Act) to apply in a non-uniform manner throughout the United States of America.
20 65. Based on the foregoing allegations, MORTON, AYALA, and the U.S. Territories & 21 Possessions Class seek a declaration that (1) Defendants’ policy of conditioning/restricting funding 22 23 under Section 2201(c)(1) of the CARES Act and, in turn, requiring the respective U.S. Territories & 24 Possessions to withhold EIP benefits from territorial incarcerated persons based solely on their
25 incarcerated status exceeds Defendants’ statutory authority under the Section 2201(c)(1) of the
26 CARES Act; (2) Defendants’ policy violates the Uniformity Clause; (3) Defendants’ policy violates the 27 Due Process Clause. 28
14 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 33 of 55

1
2
66.
3 4 67.

COUNT 3 Declaration that Respective Plans Have No Legal Force & Effect Paragraphs 1 through 50 are realleged and incorporated herein. Assuming that Section 2201(c)(1)(B) of the CARES Act applies in the first instance to the

5 respective U.S. Territory & Possessions (a point MORTON, AYALA, and the U.S. Territories &

6 Possessions Class contest regarding the USVI, Guam, and CNMI, i.e. mirror code jurisdictions, see

7 Count 4 infra), Section 2201(c)(1)(B) does not allow for the delegation of authority from the Secretary 8
of the Treasury.
9 10 68. Accordingly, absent a statutory grant of authority by Congress to the Secretary of the Treasury

11 to delegate the Secretary of the Treasury’s authority, the only person that could enter into the Plan is

12 the Secretary of the Treasury, at all times relevant, Steven Mnuchin.

13 69. A cursory review of the Plan purportedly entered into with the USVI indicates that it was 14
purportedly approved by David J. Kautter, the Assistant Secretary of Tax Policy. Mr. Kautter is not
15 16 the Secretary of the Treasury; thus, he lacked the authority under Section 2201(c)(1)(B) to enter into

17 the Plan, and the Plan is a legal nullity.

18 70. Because Kautter lacked authority under Section 2201(c)(1)(B) he cannot bind the Federal

19 Government.

20
71.
21

Assuming one could read into Section 2201(c)(1)(B) a delegation provision (a point

22 MORTON, AYALA, and the U.S. Territories & Possessions Class contest), 26 C.F.R. § 301.7701-9

23 requires the delegation to be “duly authorized by the Secretary (directly, or indirectly by one or more

24 redelegations of authority)[.]” Here there was no delegation.

25 72. Of the publicly available Treasury Orders, see https://www.treasury.gov/about/role-of26
treasury/orders-directives/Pages/orders-numeric.aspx, only two are to the Assistant Secretary of Tax
27

28

15 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 34 of 55

1 Policy, to wit: Orders 111-01 & 111-02.1 A copy of Order 111-01 is attached as Exhibit 5; Order 111-

2 02 is attached as Exhibit 6.
3 73. Neither Order 111-01 nor Order 111-02 address the CARES Act, nor the ability of the 4
Assistant Secretary of Tax Policy to enter into a “Plan” with the U.S. Territories & Possessions. Thus,
5 6 there was no delegation that authorized the Assistant Secretary of Tax Policy to “sign” any Plan.

7 74. Because Kautter lacked delegated authority to “sign” any Plan, he cannot bind the Federal

8 Government.
9 75. Additionally, because a governmental document must be signed by a person with sufficient 10
legal authority to execute the document, the failure to sign the document renders it a legal nullity.
11 12 76. Based on the foregoing allegations, MORTON, AYALA, and the U.S. Territories &

13 Possessions Class seek a declaration that (1) any Plan entered into with a U.S. Territory or Possession

14 that is not signed by Secretary of the Treasury Steven Mnuchin is a legal nullity that has no force and
15 effect; (2) any Plan entered into with a U.S. Territory or Possession that is signed by David J. Kautter, 16
the Assistant Secretary of Tax Policy, is a legal nullity that has no force and effect; and (3) any Plan
17 18 entered into with a U.S. Territory or Possession that is not “signed” is a legal nullity that has no force

19 and effect.

20

COUNT 4

21

Defendants’ Policy of Imposing a Plan under purported authority of Section 2201(c)(1)(B) on Mirror Code Jurisdictions is Ultra Vires, Contrary to Law, in Excess of Statutory Authority, and

22

Arbitrary & Capricious (APA violation, 5 U.S.C. §§ 702 & 706(2))

23 77. Paragraphs 1 through 50 are realleged and incorporated herein.

24 78. MORTON and the Mirror Code Sub-Class are all eligible for EIP benefits pursuant to the

25 CARES Act, 26 U.S.C. § 6428 (as mirrored), because they meet the statutory requirements.

26 79. 27

Defendants’ policy of conditioning/restricting funding under Section 2201(c)(1) of the

28

1 Available at https://www.treasury.gov/about/role-of-treasury/orders-directives/Pages/to111-

01.aspx; https://www.treasury.gov/about/role-of-treasury/orders-directives/Pages/to111-02.aspx.

16 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 35 of 55
1 CARES Act on the execution of a Plan under Section 2201(c)(1)(B) by mirror code jurisdictions (for 2 which there is no requirement of a Plan under Section 2201(c)(1)(A)) exceeds Defendants’ statutory 3 authority under Section 2201(c)(1) of the CARES Act (i.e., there is no statutory authority to enter 4 5 into a Plan), which is ultra vires, contrary to law, arbitrary and capricious, or otherwise unlawful within 6 the meaning of the APA, 5 U.S.C. § 706(2). 7 80. The respective Plans entered into with mirror code jurisdictions must be held to be unlawful 8 and set aside under 5 U.S.C. § 706(2). 9 81. MORTON and the Mirror Code Sub-Class have been aggrieved by Defendants’ policy of 10 11 conditioning funding under Section 2201(c)(1) of the CARES Act with the execution of a Plan under 12 Section 2201(c)(1)(B) for mirror code jurisdictions, because absent a Plan there would be nothing to 13 restrict the respective U.S. Territories & Possessions from issuing EIP benefits to territorial 14 incarcerated persons based solely on their incarcerated status. 15 82. The conditions imposed by the Defendants in the respective “Plans” constitutes final 16 17 administrative action under 5 U.S.C. § 704. 18 83. Based on the foregoing allegations, MORTON and the Mirror Code Sub-Class seek monetary 19 relief in an amount equal to each Mirror Code Sub-Class Member’s benefit under the CARES Act 20 and an order compelling Defendants to cause their agents to issue EIP benefits to MORTON and the 21 Mirror Code Sub-Class. 22 23 84. In the alternative, based on the foregoing violations, MORTON and the Mirror Code Sub24 Class request injunctive relief ordering Defendants to (a) vacate/annul any Plan with a U.S. Territory 25 or Possession that uses a mirror code, and (b) provide funding to mirror code jurisdictions under 26 Section 2201(c)(1)(A) without restrictions. 27 28
17 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 36 of 55

1

PRAYER FOR RELIEF

2

WHEREFORE, the Plaintiffs pray that this Court:

3 A. Certify the proposed U.S. Territories & Possessions Class, appoint AYALA and MORTON 4
as class co-representatives, and appoint their counsel to represent the U.S. Territories & Possessions
5

6 Class.

7 B. Certify the proposed Mirror Code Sub-Class, appoint MORTON as sub-class representative,

8 and appoint his counsel to represent the Mirror Code Sub-Class.
9 C. Award damages to AYALA and MORTON and the U.S. Territories & Possessions Class in 10
the amount of each individual’s entitlement under the CARES Act and enter judgment against
11 12 Defendants in favor of AYALA and MORTON and the U.S. Territories & Possessions Class.

13 D. Award damages to MORTON and the Mirror Code Sub-Class in the amount of each

14 individual’s entitlement under the CARES Act and enter judgment against Defendants in favor of

15 MORTON and the Mirror Code Sub-Class.

16

E.
17

Order/enjoin Defendants to (1) remove any provision from the respective “Plans” that

18 conditions funding under Section 2201(c)(1) of the CARES Act based on incarcerated status, (2)

19 withdraw any statements/directives/orders, etc. (including but not limited to

20 statements/directives/orders made to the respective U.S. Territories & Possession) which direct that
21 incarcerated individuals are not entitled to CARES Act funds, and (3) immediately authorize the U.S. 22
Territories & Possessions to issue EIP benefits to all territorial incarcerated persons under the custody
23 24 of the respective U.S. Territories & Possessions without regard to their incarcerated status.

25 F. Declare that the policy that territorial incarcerated people are not eligible to receive the EIP is

26 (1) arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law; (2)
27 contrary to constitutional right, power, privilege, or immunity; or (3) ultra vires, in excess of statutory 28
jurisdiction, authority, or limitations, or short of statutory right.

18 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 37 of 55

1 G. Set aside the policy that territorial incarcerated people are not eligible to receive the EIP as

2 being (1) arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law;
3 (2) contrary to constitutional right, power, privilege, or immunity; or (3) ultra vires, in excess of 4 5 statutory jurisdiction, authority, or limitations, or short of statutory right. 6 H. Declare that Defendants have violated AYALA’s, MORTON’s, and the U.S. Territories &

7 Possessions Class Members’ respective rights under the Due Process Clause, the Uniformity Clause,

8 and/or the CARES Act.

9 I.

Declare that: (1) any Plan entered into with a U.S. Territory or Possession that is not signed

10

11 by Secretary of the Treasury Steven Mnuchin is a legal nullity that has no force and effect; (2) any Plan

12 entered into with a U.S. Territory or Possession that is signed by David J. Kautter, the Assistant

13 Secretary of Tax Policy, is a legal nullity that has no force and effect; and (3) any Plan entered into

14 with a U.S. Territory or Possession that is not “signed” is a legal nullity that has no force and effect.

15 J.

Declare that any Plan issued under the purported authority of Section 2201(c)(1)(B) by a

16

17 mirror code jurisdiction is ultra vires and a legal nullity, which has no legal force and effect.

18 K. Declare that funding under Section 2201(c)(1)(A) cannot be conditioned upon the execution

19 of a Plan under Section 2201(c)(1)(B) and order the Defendants to provide funding to mirror code

20 jurisdictions under Section 2201(c)(1)(A) without restrictions.

21 L.

Award Plaintiffs, the Class, and the Sub-Class reasonable attorneys’ fees and costs of suit, as

22

23 well as pre-judgment and post-judgment interest as permitted by law. And,

24 M. Grant such additional and further relief as the Court deems proper and just.

25 //

26 //
27 // 28
//

19 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 38 of 55

1 Respectfully Submitted,

2

3

By: ________________________ Edward M. Robbins, Jr.

4

California Bar No. 82696 HOCHMAN SALKIN TOSCHER PEREZ, PC

5

9150 Wilshire Blvd., Suite 300 Beverly Hills, California 90212

6

310.281.3247 (O) 310.859.5129 (F)

7 edr@taxlitigator.com

Dated Dec. __, 2020

8 By: ________________________

9

Joseph A. DiRuzzo, III Fla. Bar No. 0619175

10

DIRUZZO & COMPANY 401 East Las Olas Blvd., Suite 1400

11

Ft. Lauderdale, Florida 33301 954.615.1676 (O)

12

954.827.0340 (F) jd@diruzzolaw.com

13

Dated Dec. __, 2020

14

CERTIFICATE OF SERVICE

15

I hereby certify that I electronically filed the foregoing Notice of with the Clerk of Court using the CM/ECF system, which will send a notification of such filing (NEF) to counsel of record.

16 Additionally, a paper copy of the foregoing is provided via USPS to:

17 By: ________________________ 18 Edward M. Robbins, Jr.

Dated Dec. __, 2020

19

20

21

22

23

24

25

26

27

28

20 CLASS ACTION COMPLAINT IN INTERVENTION

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 39 of 55 Proposed Motion for Civil Contempt

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 40 of 55

1 Edward M. Robbins, Jr.
HOCHMAN SALKIN TOSCHER PEREZ, PC
2 9150 Wilshire Blvd., Suite 300
Beverly Hills, California 90212
3 310.281.3247 (O)
310.859.5129 (F)
4 edr@taxlitigator.com

5 Joseph A. DiRuzzo, III (pro hac vice forth coming)
DIRUZZO & COMPANY
6 401 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, Florida 33301
7 954.615.1676 (O)
954.827.0340 (F)
8 jd@diruzzolaw.com

9 Counsel for Jamal A. Morton and Araclis N. Ayala, individually and on behalf of all others similarly situated

10

11

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

12 -------------------------------------------------------------------------------------------------------------x

COLIN SCHOLL, et al.,

13

Plaintiff,

:

Case No. 4:20-cv-5309-PJH

:

14 JAMAL A. MORTON and ARACLIS N. AYALA,

: :

NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

15 on behalf of themselves and all others

:

similarly situated,

:

16

Intervenors,

:

17

v.

:

:

Hr’g Date: TBD

18 STEVEN MNUCHIN, et al.,
Defendants.

:

Hr’g Time: TBD

:

Judge: Hon. Phyllis J. Hamilton

19 -------------------------------------------------------------------------------------------------------------x

20

21

NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

22

23

24

25

26

27

28

NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 41 of 55

1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

2

PLEASE TAKE NOTICE that Pursuant to Local Rule 7-1(b), JAMAL A. MORTON and

3 ARACLIS N. AYALA, individually and on behalf of all others similarly situated, respectfully move, 4
without oral argument, to hold the named Defendants and agents thereof (including but not limited
5

6 to the United States Virgin Islands (the “USVI”)) in civil contempt for willfully disobeying this Court’s

7 October 14, 2020 order. Alternatively, Morton and Ayala notice that on ____________, 2020, at

8 9:00 a.m., before the Hon. Chief District Judge Phyllis J. Hamilton, Oakland Courthouse, Courtroom

9 3 – 3rd Floor, 1301 Clay Street, Oakland, CA 94612, or as soon thereafter as the Court may order, 10
Morton and Ayala will and do hereby move for the same relief.
11

12

This motion is based on the supporting memorandum below; the accompanying Affidavit of

13 the USVI Bureau of Internal Revenue (“BIR”) Director Joel A. Lee, CPA, the position taken by the

14 USVI in Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.), any further papers filed in support of this

15 motion, the argument of counsel, and all pleadings and records on file in this matter.

16

17

Intervenors Jamal A. Morton and Araclis N. Ayala, individually and on behalf of all others

18 similarly situated, respectfully submit this Memorandum in support of their Motion for Civil

19 Contempt Against Defendants Steven Mnuchin, Charles Rettig, the U.S. Department of the Treasury,

20 the Internal Revenue Service, and the United States of America (collectively, the “Federal
21 Government”) and agents thereof (i.e., the U.S. Territories & Possessions including, but not limited 22 23 to, the heads of the respective local taxation authorities that are facilitating the Federal Government’s 24 willful disobedience of this Court October 14th injunction).

25

26

27

28

1 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 42 of 55

1

MEMORANDUM IN SUPPORT

2

INTRODUCTION

3

Since this Court entered its October 14th permanent injunction against the Federal

4 Government it has appeared, from the face of the injunction order and the related moving papers of 5
the Plaintiffs and the Defendants, that the Court’s October 14th injunction applied to the United
6

7 States of America (i.e., everywhere under the American flag) and not merely the “United States” as

8 legal term of art, see 26 U.S.C. § 7701(a)(9) (defining that the “[t]erm ‘United States’ when used in a

9 geographical sense includes only the States and the District of Columbia.”). Thus, October 14th
10 injunction applies to the Federal Government’s actions including, by necessary extension under Fed. 11 12 R. Civ. P. 65(d)(2), actions by the Federal Government’s agents (i.e., the U.S. Territories & Possessions 13 that are complying with their respective Plans).

14

If the Intervenors are correct (and they believe that the text of the October 14th order taken

15 together with the procedural history of this case demonstrates that they are), then the Federal
16 Government’s actions in continuing to instruct the U.S. Territories & Possessions to deny the 17 18 Economic Impact Payment (“EIP”) to incarcerated individuals violates this Court’s permanent 19 injunction.

20

Further, the Federal Government’s continued instance of imposing the condition, that

21 funding under Section 2201(c)(1) of the CARES Act will be withheld from the U.S. Territories &

22 Possessions if the U.S. Territories & Possessions issue the EIP to incarcerated individuals, likewise 23 24 violates this Court’s permanent injunction.

25

The Court should exercise its considerable discretion and hold the Federal Government in

26 contempt.

27

28

2 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 43 of 55

1

BACKGROUND

2 I.

THE INSTANT CASE

3

On August 8, 2020, a class action complaint was filed against the Federal Government

4

contesting the IRS’s position that incarcerated individuals are not eligible for the EIP under the
5

6 CARES Act. Indeed, IRS Chief Counsel Michael J. Desmond provided a declaration in this case,

7 docket no. 44-1, stating that: “incarcerated individuals do not qualify for the advance payments.” Id.

8 at ¶5.

9

On September 24, 2020, this Court granted the Scholl plaintiffs a preliminary injunction and

10

11 class certification. Scholl v. Mnuchin, 2020 WL 5702129 (N.D. Cal. Sept. 24, 2020) (“Scholl I”). On

12 October 14, 2020, this Court entered an order granting in part and denying in part the Scholl

13 plaintiffs’ motion for summary judgement, entered a permanent injunction against the Federal

14 Government, and certified the class for all purposes. Scholl v. Mnuchin, 2020 WL 6065059, at *22

15
(N.D. Cal. Oct. 14, 2020) (“Scholl II”).
16

17

The Federal Government appealed this case to the Ninth Circuit, and moved the Ninth

18 Circuit for an order staying the District Court’s decision pending appeal. See Ninth Cir. case no. 20-

19 17077. The Ninth Circuit denied the motion to stay, concluding that the Federal Government had

20 not “demonstrated a sufficient likelihood of success on appeal to warrant a stay.” Scholl, et al. v.

21
Mnuchin, et al., case no. 20-17077 at ECF No. 9.
22

23

Consequently, the injunction remains in place and is fully operative against the Federal

24 Government and its agents, servants, and persons in active concert with the named defendants. See

25 Fed. R. Civ. P. 65(d) (detailing persons to be bound by injunction order). 26

27

28

3 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 44 of 55

1 II.

TAXATION IN THE UNITED STATES TERRITORIES & POSSESSIONS

2

A. The Internal Revenue Code

3

The Internal Revenue Code has specific provisions addressing United States taxpayers who

4 reside and have income “sourced” in the Territories and Possessions. For example, 26 U.S.C. § 937 5
addresses residency and sourcing rules regarding the Territories and Possessions. 26 U.S.C. § 932(c)
6

7 requires that USVI residents file their income tax return with, and pay their tax liability to the USVI.

8 26 U.S.C. § 933 addresses bona fide residents of Puerto Rico, requiring the filing of an income tax

9 return with the Puerto Rican tax authority for U.S. citizens residing in Puerto Rico who only received

10 income from sources within Puerto Rico. See generally, IRS Pub. 1321. 11 12 https://www.irs.gov/pub/irs-pdf/p1321.pdf (last accessed 11/21/20).

Available at

13

B. Taxation in the U.S. Territories & Possessions

14

1. The USVI

15

The Naval Service Appropriations Act of 1921, codified at 48 U.S.C. § 1397, provides: “[t]he

16 income-tax laws in force in the United States of America and those which may hereafter be enacted

17 shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds
18 of such taxes shall be paid into the treasuries of said islands.” “This statutory scheme is known as the 19 20 ‘mirror code,’ under which the Internal Revenue Code is applied to the Virgin Islands merely by
21 substituting ‘Virgin Islands’ for ‘United States’ throughout.” Vento v. Dir. of Virgin Islands Bureau of

22 Internal Revenue, 715 F.3d 455, 465 (3d Cir. 2013). Thus, a USVI taxpayer may “not be required to

23 pay taxes to the federal government, so long as she files a territorial tax return that fully reports her

24
income and then fully pays her territorial taxes to the [USVI].” Cooper v. Comm’r, 718 F.3d 216, 219
25 26 (3d Cir. 2013).

27

2. Guam & the Commonwealth of the Northern Mariana Islands (“CNMI”)

28

Similar to the USVI,

4 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 45 of 55

1

the Internal Revenue Code applies in both Guam and the Marianas through a “mirror

image” system under which each jurisdiction administers and collects its own taxes.

2

Citizens or residents of either jurisdiction are required to file only one income tax

return. Under these “mirroring” provisions, either Guam or CNMI is to be substituted

3

wherever “United States” appears in the Internal Revenue Code, unless such

substitution would be “manifestly incompatible” with the Code or Covenant.

4

Holmes v. Dir. of the Dep’t of Revenue & Taxation, Gov’t of Guam, 937 F.2d 481, 483–84 (9th Cir. 1991)

5

6 (cleaned up). See also Sayre & Co. v. Riddell, 395 F.2d 407, 412 (9th Cir. 1968) (“The general conclusion

7 that we draw ... is that Congress intended that Guam should apply the Internal Revenue Code ... just

8 as the United States applies the Code to persons and income within its territory.”). Consequently,

9 “Guam residents do not pay any income tax to the U.S. federal government; instead, they pay a 10
territorial income tax to the government of Guam.” Gumataotao v. Dir. of Dep’t of Revenue & Taxation,
11 12 236 F.3d 1077, 1079 (9th Cir. 2001).

13

3. Puerto Rico

14

While Puerto Ricans pay most of their income taxes to the local tax authority, see 26 U.S.C. §

15 933, supra, the still pay their federal income taxes to the IRS “on income from sources outside Puerto
16 Rico for which they are liable under the Internal Revenue Code, the regular payment of federal 17
income taxes by all federal employees in Puerto Rico, as well as the full Social Security, Medicare, and
18 19 Unemployment Compensation taxes[.]” United States v. Vaello-Madero (1st Cir. 2020) (cleaned up).

20 III. THE CARES ACT IN THE TERRITORIES & POSSESSIONS

21

A. Section 2201 of the CARES Act

22

Section 2201(c)(1) addresses the payments to U.S. Possessions, and states:

23

(A) MIRROR CODE POSSESSION.—The Secretary of the Treasury shall pay to

24

each possession of the United States which has a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the amendments

25

made by this section. Such amounts shall be determined by the Secretary of the Treasury based on information provided by the government of the respective

26

possession.

27

(B) OTHER POSSESSIONS.—The Secretary of the Treasury shall pay to each possession of the United States which does not have a mirror code tax

28

system amounts estimated by the Secretary of the Treasury as being equal to the aggregate benefits (if any) that would have been provided to residents of

such possession by reason of the amendments made by this section if a mirror

5 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 46 of 55

1

code tax system had been in effect in such possession. The preceding sentence shall

not apply unless the respective possession has a plan, which has been approved by the

2

Secretary of the Treasury, under which such possession will promptly distribute such

payments to its residents.

3

CARES Act, § 2201(c)(1)(A)-(B).

4

5

B. The IRS’s Position on the CARES Act in the Territories & Possessions

6

Per the IRS website:

7

Q A3. If I live in Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands, will I get a payment

8

if I’m eligible? (Updated October 26, 2020) A3. In many cases, the answer is yes. But special rules in the law apply to these

9

five U.S. territories (possessions). In general, the tax authorities in each territory will make Payments to eligible residents. If you are a resident of one of these territories with questions about

10

a payment, you should contact your local tax authority. Resident of a U.S Territory: If you receive a Payment from the IRS and a U.S

11

territory tax agency and you are a resident of a U.S. territory for the 2020 tax year, please consult with your U.S. territory tax agency concerning information about an

12

incorrect or duplicate Payment. Not a resident of a U.S. Territory: If you have received a Payment from more

13

than one jurisdiction and you are a not a resident of a U.S. territory for the 2020 tax year, you should return any incorrect or duplicate Payment received from the U.S.

14

territory tax agency to the IRS following the instructions about repayments. Go to Topic I: Returning the Economic Impact Payment for instructions.

15 https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility

16

(last accessed Nov. 21, 2020) (emphasis added), (attached hereto as Exhibit 1).
17

18 IV. THE USVI CLASS ACTION LITIGATION

19

On October 27, 2020, counsel for Morton sent the Director of the USVI BIR correspondence

20 seeking clarification as to whether the BIR shared the same view as the IRS regarding whether the
21 CARES Act in general, and the EIP in particular, applied to incarcerated individuals. Attached hereto 22
as Exhibit 2. Counsel for Morton expressed that time was of the essence because the EIP must be
23 24 issued “as rapidly as possible,” 26 U.S.C. § 6428(f)(3), and that “[n]o refund or credit shall be made

25 or allowed under this subsection after December 31, 2020[,]” id. Exhibit 2 at p. 2.

26

Counsel for Morton received no response to his October 27th correspondence and concluded

27 that the USVI government took the same position as the Federal Government as to the EIP for 28
incarcerated individuals, i.e., that they are not eligible.

6 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 47 of 55

1

Consequently, Morton filed suit, Morton v. USVI, et al., case no. 3:20-cv-109 (D.V.I.),

2 attempting to obtain his EIP. Morton moved for a preliminary injunction, id. at docket no. 5, moved
3
to expedite, id. at docket no. 8, and moved for summary judgment, id. at docket no. 18. The District
4 5 Court of the Virgin Islands set a hearing on Morton’s preliminary injunction motion for November
6 24th. See id. at docket nos. 30 & 32.

7

On November 20th, the USVI filed its opposition (a copy of which is attached hereto as Exhibit

8 3), and attached the affidavit of Director Joel A. Lee, CPA, in support of the opposition (a copy of

9
which is attached hereto as Exhibit 4. Id. at docket nos. 37 & 37-1.
10

11

Importantly, in the Morton case, the USVI avers that it “merely serve[s] as an intermediary

12 between eligible Virgin Islands taxpayers on the one hand, and U.S. Treasury on the other. [The

13 USVI] take[s] no position on the eligibility of incarcerated persons. [The USVI] merely distribute[s]

14 the federal funds we have been provided in accordance with the conditions that are provided by the

15
U.S. Treasury.” Ex. 3 at p. 2.
16

17 V.

TREASURY’S “PLAN” WITH THE USVI

18

As detailed in the sworn statement by Director Lee, “the United States Treasury Department

19 has advanced federal funds to the USVI BIR to be used to pay the advanced EIPs pursuant to an EIP
20 Implementation Plan (the “Plan”). Treasury considers the Plan confidential and prohibits its 21
disclosure.” Lee Aff. at ¶6.1 The USVI “holds these federal CARES Act funds in trust, pursuant to
22 23 the Plan authorized by the United States Treasury Department.” Id. at ¶7. “[T]he Plan imposes
24 restrictions upon the USVI BIR’s use of the CARES Act Trust Fund monies.” Id. at ¶8. “[O]ne of

25 the Plan restrictions is that CARES Act Trust Fund monies cannot be used to pay EIPs to incarcerated
26 persons.” Id. at ¶9 (emphasis added). “[T]he Plan also restricts the USVI BIR’s expenditures of CARES 27

28

1 Morton has moved to unseal the Plan. See Morton v. USVI, et al., case no. 3:20-cv-109

(D.V.I.) at docket no. 49.

7 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 48 of 55

1 Act Trust Fund monies insofar as no EIPs can be remitted from the CARES Act Trust Fund unless it

2 is are [sic] based on a tax return filed by the taxpayer.” Id. at ¶10. “[T]he USVI BIR has not interpreted
3 the CARES Act with respect to eligibility. Instead, EIPs are remitted solely in conformance with the 4 5 limitations placed on the funds provided by the United States Treasury Department.” Id. at ¶12 (emphasis
6 added).

7

APPLICABLE LAW

8

“[A] district court has the inherent power to enforce its orders.” Nikko Materials USA, Inc. v.

9
R.E. Serv. Co., Inc., 2006 WL 1749550 at *2 (N.D. Cal. June 22, 2006); see also Spallone v. United States,
10 11 493 U.S. 265, 276 (1990). This power is derived “not only from statute, 18 U.S.C. § 401, but more

12 broadly from the implied powers ‘necessarily vested in courts to manage their own affairs as to achieve

13 the orderly and expeditious disposition of cases.’” Nikko Materials USA, 2006 WL 1749550 at *2

14 (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)). 15
To that end, district courts have the inherent power to enforce their orders through civil
16 17 contempt. Spallone, 493 U.S. at 276; Cal. Dep’t of Soc. Servs. v. Leavitt, 523 F.3d 1025, 1033 (9th Cir.

18 2008). “Civil contempt ... consists of a party’s disobedience to a specific and definite court order by

19 failure to take all reasonable steps within the party’s power to comply.” Inst. of Cetacean Research v. Sea
20 Shepherd Conservation Soc’y, 774 F.3d 935, 945 (9th Cir. 2014) (citing In re Dual-Deck Video Cassette 21 22 Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993)); see also In re Crystal Palace Gambling Hall,
23 Inc., 817 F.2d 1361, 1365 (9th Cir. 1987) (“A person fails to act as ordered by the court when he fails

24 to take all the reasonable steps within his power to insure compliance with the court’s order.”) (cleaned

25 up). “The contempt ‘need not be willful,’ and there is no good faith exception to the requirement of
26
obedience to a court order.” In re Dual-Deck Video, 10 F.3d at 695 (citing In re Crystal Palace, 817 F.2d
27 28 at 1365).

8 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 49 of 55

1

“Civil contempt sanctions ... are employed for two purposes: to coerce the defendant into

2 compliance with the court’s order, and to compensate the complainant for losses sustained.” Whittaker
3 Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th Cir. 1992) (citing United States v. United Mine Workers 4 5 of Am., 330 U.S. 258, 303-04 (1947)). “Generally, the minimum sanction necessary to obtain
6 compliance is to be imposed.” Id. (citations omitted). “Unlike the punitive nature of criminal

7 sanctions, civil sanctions are wholly remedial.” Id. (citation omitted). “A court has wide latitude in

8 determining whether there has been contemptuous defiance of its order.” Gifford v. Heckler, 741 F.2d 9
263, 265–66 (9th Cir. 1984) (citing Neebars, Inc. v. Long Bar Grinding, Inc., 438 F.2d 47, 48 (9th Cir.
10 11 1971)). Trial courts also have power to award reasonable attorneys’ fees and costs against the

12 contemnor as a sanction for disobedience of its orders. Perry v. O’Donnell, 759 F.2d 702, 705 (9th Cir.

13 1985).

14

“It is well-settled that a court’s contempt power extends to non-parties who have notice of the

15

court’s order and the responsibility to comply with it.” United States v. Montgomery Glob. Advisors V
16

17 LLC, 2006 WL 950102, at *2 (N.D. Cal. Mar. 2, 2006) (citing Chicago Truck Drivers v. Brotherhood

18 Labor Leasing, 207 F.3d 500, 506-07 (8th Cir. 2000)); see also Inst. of Cetacean Research, 774 F.3d at 949

19 (“It has long been settled law that a person with notice of an injunction may be held in contempt for
20 aiding and abetting a party in violating it.”). In the Ninth Circuit, a non-party can be liable for 21 22 contempt where the non-party has notice of the order and (1) aids the party in violating the court
23 order or (2) is legally identified with him. Montgomery Glob. Advisors V LLC, 2006 WL 950102, at *2

24 (citing Peterson, 140 F.3d at 1323). “The party alleging civil contempt must demonstrate that the

25 alleged contemnor violated the court’s order by ‘clear and convincing evidence,’ not merely a
26
preponderance of the evidence.” In re Dual-Deck Video, 10 F.3d at 695 (quoting Vertex Distrib., Inc. v.
27 28 Falcon Foam Plastics, Inc., 689 F.2d 885, 889 (9th Cir. 1982)).

9 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 50 of 55

1

The Federal Rules of Civil Procedure specifically “provide for enforcement of judgments

2 against non-parties in limited circumstances.” Peterson v. Highland Music, Inc., 140 F.3d 1313, 1323
3 (9th Cir. 1998). Pursuant to Federal Rule of Civil Procedure 65(d), an injunction is “binding only 4 5 upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon 6 those persons in active concert or participation with them who receive actual notice of the order by

7 personal service or otherwise.” Fed. R. Civ. P. 65(d). This is because “[a] command to a corporation

8 is in effect a command to those who are officially responsible for the conduct of its affairs.” N.L.R.B.

9
v. Sequoia Dist. Council of Carpenters, 568 F.2d 628, 633 (9th Cir. 1977).

10

11

DISCUSSION

12 I.

THE COURT SHOULD HOLD THE FEDERAL GOVERNMENT IN CIVIL CONTEMPT

13

Contempt is a remedy for defying a judgment. See SEC v. Goldfarb, 2012 WL 2343668 (N.D.

14 Cal. June 20, 2012). “If the party seeking civil contempt makes a prima facie showing that a defendant 15
did not comply with the judgment, the burden of production shifts to the defendant to show inability
16 17 to comply with the judgment.” Id. at *4 (citing United States v. Rylander, 460 U.S. 752, 757 (1983)).
18 “To satisfy this burden, a defendant must show ‘categorically and in detail’ why it was unable to

19 comply.” Id. (citing NLRB v. Trans. Ocean Export Packing, Inc., 473 F.2d 612, 616 (9th Cir. 1973)). “A

20 defendant cannot avoid civil contempt if its inability to pay was self-induced.” Id. (quoting United

21
States v. Asay, 614 F.2d 655, 660 (9th Cir. 1980)).
22

23

As counsel for the Federal Government has made clear to counsel for the Intervenors, the

24 Federal Government does not consider this Court’s October 14th permanent injunction to apply to

25 the U.S. Territories & Possessions nor to apply to the Federal Government’s actions in respect to the
26 U.S. Territories & Possessions. In other words, the Federal Government believes that it can continue 27
to enforce the conditions in the respective Plans that prohibit the U.S. Territories & Possessions from
28
paying incarcerated individuals the EIP. The Federal Government’s actions are particularly troubling

10 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 51 of 55

1 as the Department of the Treasury is holding the sword of Damocles over the respective U.S.

2 Territories & Possessions’ heads when it threats to withhold much-needed CARES Act funding.

3

Applying the contempt rubric set forth above, the Intervenors have demonstrated, see Goldfarb,

4

5 supra, that the Federal Government has not complied (and indeed continues to not comply) with this

6 Court’s October 14th injunction. See Ex. 4 (detailing the Plan’s EIP restrictions vis-à-vis incarcerated

7 individuals). The Federal Government cannot show inability to comply (indeed it has been

8 complying, but only in respect to those incarcerated individuals in the 50 States), see id. At bottom, 9
the Federal Government’s insistence that this Court’s injunction does not apply to the U.S.
10 11 Territories & Possessions is purely a situation of its own making, i.e., it was absolutely self-induced,
12 see Asay, supra.

13

Consequently, the Federal Government’s intransigence requires that this Court hold the

14 Federal Government in contempt to coerce compliance with the Court’s permanent injunction. See

15
Whittaker Corp., 953 F.2d at 517. The contempt order should be issued forthwith.
16

17 II.

THE COURT SHOULD HOLD THE U.S. TERRITORIES & POSSESSIONS IN CIVIL CONTEMPT

18

Sanctions for civil contempt are properly imposed against non-parties. See, e.g., Methven &

19 Assocs. Prof’l Corp. v. Kelley, 669 F. App’x 923, 924 (9th Cir. 2016) (recognizing “findings of civil

20 contempt against non-parties”); David v. Hooker, Ltd., 560 F.2d 412, 416 (9th Cir. 1977 (same). Also,
21 Federal Rule of Civil Procedure 71 allows the limited enforcement of judgments against non-parties. 22
See, e.g., Westlake North Property Owners Ass’n v. Thousand Oaks, 915 F.2d 1301, 1304 (9th Cir. 1990)
23 24 (“Rule 71 was intended to assure that process be made available to enforce court orders in favor of

25 and against persons who are properly affected by them, even if they are not parties to the action.”).

26

Courts have long recognized that contempt sanctions against non-party corporate officers are

27 appropriate means to address a corporation’s/entity’s willful disobedience of a court order. See
28
Peterson v. Highland Music, Inc., 140 F.3d 1313, 1323 (9th Cir. 1998) (holding non-party corporate

11 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 52 of 55

1 president in contempt where he “flagrantly and deliberately aided and abetted [the defendants] in

2 violating the express terms of the judgment”). As the Supreme Court recognized in 1911, those
3 responsible for a corporation’s conduct can be punished for contempt for failing to take appropriate 4
action within their power: “A command to the corporation is in effect a command to those who are
5 6 officially responsible for the conduct of its affairs. If they, apprised of the writ directed to the

7 corporation, prevent compliance or fail to take appropriate action within their power for the

8 performance of the corporate duty, they, no less than the corporation itself, are guilty of disobedience,
9 and may be punished for contempt.” Wilson v. United States, 221 U.S. 361, 376 (1911). See also Bd. 10 11 of Trustees of the Ohio Carpenters’ Pension Fund v. Eskay Floor Covering, Inc., 2010 WL 2990166, at *3 12 (N.D. Ohio July 29, 2010) (“A corporate officer may be held in contempt personally for the

13 corporation’s failure to follow a court order when there is knowledge of the court’s order, and

14 responsibility combined with the officer’s power to take appropriate action, even though the corporate
15 officer is not personally identified in the order.”). “[T]o be held liable in contempt, it is necessary that 16 17 a non-party respondent must either abet the defendant [in violating the court’s order] or must be
18 legally identified with him,” and have “actual notice” of the order. NLRB v. Sequoia District Council of

19 Carpenters, 568 F.2d 628, 633 (9th Cir. 1977).

20

In this case, the USVI BIR, including but not limited to its Director, Joel A. Lee, CPA, have

21
been put on notice (by virtue of being sued by Morton in the District Court of the Virgin Islands,
22 23 which extensively references the litigation in this case) that the Federal Government has been

24 permanently enjoined. There can be no credible argument to the contrary.

25

Moreover, the USVI admits that it is the agent for the Federal Government. See Ex. 3 at p.

26 16 (the USVI “merely act as payment agent for the United States of America), and it is black letter law 27
that an agent is subject to a duty to its principal not to act in the principal’s affairs except in accordance
28
with the principal’s manifestation of consent. Restat. 2d of Agency, § 383.”) (emphasis added). Thus,

12 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 53 of 55

1 under the plain text of Fed. R. Civ. P. 65(d)(2)(B) the USVI is bound to this Court’s injunction in

2 the same manner as the Federal Government.

3

Additionally, there is an independent basis for the Court to hold the USVI (including but not

4

limited to Director Lee) in contempt – Rule 71. Rule 71 succinctly states: “[w]hen an order grants
5

6 relief for a nonparty or may be enforced against a nonparty, the procedure for enforcing the order is

7 the same as for a party.” “Rule 71 permits a district court to use the same processes for enforcing

8 obedience to the order as if he were a party, such as holding him in contempt for violating it.” Irwin
9 v. Mascott, 370 F.3d 924, 931 (9th Cir. 2004) (cleaned up). “Rule 71 was intended to assure that 10 11 process be made available against persons who are properly affected by them, even if they are not
12 parties to the action.” Westlake North Property Owners Ass’n v. Thousand Oaks, 915 F.2d 1301, 1304 (9th

13 Cir. 1990). See also United States v. Crookshanks, 441 F. Supp. 268, 270 (D. Or. 1977) (“[A] court can

14 enjoin non-parties whose actions threaten to interfere with compliance with prior orders of the

15
court.”).

16

17

This Court should, in the alternative to Rule 65(d), use Rule 71 to enforce the USVI’s

18 compliance (including but not limited to Director Lee) as if they were a party to the October 14th

19 injunction and hold them in contempt. Given the USVI’s recognition that it was acting in a manner

20 consistent with the terms of the Plan, knowing full well that the provisions in the Plan addressing

21
incarcerated individuals were addressed by this Court’s injunction, it should stand on equal footing
22 23 as the Federal Government and likewise be held in contempt.

24

In respect to the other U.S. Territories & Possessions (i.e., Puerto Rico, Guam, CNMI, and

25 American Samoa), the Intervenors believe the IRS and/or Department of the Treasury to have been

26 in contact with the other U.S. Territories & Possessions regarding the applicability of the injunction

27
entered in this case against the Federal Government.
28

The Intervenors further believe,

notwithstanding the injunction entered in this case, the IRS and/or Department of the Treasury to

13 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 54 of 55

1 have instructed the other U.S. Territories & Possessions to continue to withhold EIP to incarcerated

2 individuals. The Intervenors admit, as they must, that they lack visibility into the communication
3 between the IRS and/or Department of the Treasury and the U.S. Territories & Possessions, but if 4
the Intervenors are correct (and indeed Occam’s Razor indicates that they are), then under Rule 65(d)
5 6 and Rule 71 they, like the USVI, must be held in contempt.

7 III. REQUESTED RELIEF

8 A. Issuance of the EIP

9

The relief the Intervenors seek is quite simple, they request that this Court enter an order (1)

10 compelling Defendants to cause its agents to issue EIP benefits to MORTON, AYALA, and the U.S.
11 Territories & Possession Class, and (2) enter an order requiring the Federal Government to remove 12
any condition from the respective “Plans” that condition funding under Section 2201(c)(1) of the
13 14 CARES Act based on incarcerated status, and withdraw any statements/directives/orders, etc.

15 (including but not limited to statements/directives/orders made to the respective U.S. Territories &

16 Possessions), which direct that incarcerated individuals are not entitled to CARES Act funds.

17

This modest requested relief is the minimum sanction needed to obtain compliance, see

18

19 Whittaker Corp., 953 F.2d at 517, under the circumstances. The civil contempt order should be issued

20 forthwith.

21 B. Attorneys’ Fees

22

“All Federal Courts are vested with inherent powers enabling them to manage their cases and

23 courtrooms effectively and to ensure obedience to their orders.... As a function of this power, courts 24
25 can ... award attorney’s fees and assess fines.” Aloe Vera of Am., Inc. v. United States, 376 F.3d 960, 964-

26 65 (9th Cir. 2004) (cleaned up).

27

Given the obstinate position of the Federal Government and its agents, and given the

28 Herculean efforts that Morton, Ayala, and members of the U.S. Territories & Possessions Class have

14 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT

Case 4:20-cv-05309-PJH Document 163 Filed 12/11/20 Page 55 of 55

1 needed to exert to obtain their much needed CARES Act EIPs, this Court should award attorneys’

2 fees and costs in this case.2

3

CONCLUSION

4

WHERFORE, based on the foregoing, Morton and Ayala respectfully move this Court to
5

6 grant the motion in full.

7 Respectfully Submitted,

8 By: ________________________

9

Edward M. Robbins, Jr. California Bar No. 82696

10

HOCHMAN SALKIN TOSCHER PEREZ, PC 9150 Wilshire Blvd., Suite 300

11

Beverly Hills, California 90212 310.281.3247 (O)

12

310.859.5129 (F) edr@taxlitigator.com

Dated Dec. __, 2020

13 By: ________________________

14

Joseph A. DiRuzzo, III Fla. Bar No. 0619175

15

DIRUZZO & COMPANY 401 East Las Olas Blvd., Suite 1400

16

Ft. Lauderdale, Florida 33301 954.615.1676 (O)

17

954.827.0340 (F) jd@diruzzolaw.com

Dated Dec. __, 2020

18

CERTIFICATE OF SERVICE

19

I hereby certify that I electronically filed the foregoing Notice of with the Clerk of Court using the CM/ECF system, which will send a notification of such filing (NEF) to counsel of record.

20

21

By: ________________________ Edward M. Robbins, Jr

Dated Dec. __, 2020

22

23

24

25

26

27

2 Should the Court provide the Intervenors with substantive relief, counsel for the Intervenors

28

intends to broach the issue of attorneys’ fees with counsel for the Federal Government. Only if the Federal Government denies in whole, or in part, any request for attorneys’ fees will counsel for the

Intervenors seek relief from this Court. A loadstar calculation will be provided at that time.

15 NOTICE OF MOTION & MOTION FOR CIVIL CONTEMPT