Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-12-05380/USCOURTS-caDC-12-05380-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 21, 2014 Decided May 9, 2014

No. 12-5380

IN RE: LONG-DISTANCE TELEPHONE SERVICE FEDERAL EXCISE

TAX REFUND LITIGATION-MDL 1798,

OSCAR GURROLA, ET AL.,

APPELLANTS

ANTHONY BELLONI,

APPELLEE

ROSALVA GURROLA AND BERNADETTE CAROL DUFFY,

APPELLANTS

v.

UNITED STATES OF AMERICA, ACTING BY AND THROUGH THE

INTERNAL REVENUE SERVICE, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:07-mc-00014)

Michael A. Bowen argued the cause for appellants Neiland

Cohen, et al. Benjamin F. Johns argued the cause for appellants

Oscar Gurrola, et al. With them on the briefs were Jonathan W.

Cuneo, Robert J. Cynkar, William H. Anderson, Nicholas E.

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Chimicles, Marc B. Dorfman, Mark C. Rifkin, Henry D. Levine,

Charles Tiefer, and Randy J. Hart.

Ellen P. DelSole, Attorney, U.S. Department of Justice,

argued the cause for appellee United States of America. With

her on the brief were Tamara W. Ashford, Principal Deputy

Assistant Attorney General, Ronald C. Machen Jr., U.S.

Attorney, and Gilbert S. Rothenberg and Teresa E. McLaughlin,

Attorneys.

Before: TATEL and BROWN, Circuit Judges, and

RANDOLPH, Senior Circuit Judge.

Opinion for the court filed by Senior Circuit Judge

RANDOLPH.

Opinion concurring in part and dissenting in part filed by

Circuit Judge BROWN.

I.

RANDOLPH, Senior Circuit Judge: This appeal has its

genesis in 26 U.S.C. § 4251, which imposes an excise tax “on

amounts paid for . . . toll telephone service.” Telephone service

is taxed only if its price “varies in amount with the distance and

elapsed transmission time of each individual communication.”

Id. § 4252(b). Technological advances of the last few decades

changed cost structures and, as a result, telephone companies

began charging only by elapsed transmission time. The Internal

Revenue Service, however, continued to collect the tax.

Beginning in 2005, the Service lost a series of cases

challenging the tax. Five courts of appeals, including this court,

held that § 4251 did not permit the Service to tax telephone

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service with distance-invariant pricing. Around that time, the 1

three plaintiffs in this consolidated appeal (Cohen, Sloan, and

Gurrola) filed separate putative class-action suits challenging the

tax. Initially, plaintiffs raised a variety of constitutional and

statutory claims, seeking refunds and other relief. In re

Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long

Distance Tel. I), 539 F. Supp. 2d 281, 288-89 (D.D.C. 2008).

The Judicial Panel on Multidistrict Litigation consolidated the

suits in the District Court for the District of Columbia. In re

Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig., 469 F.

Supp. 2d 1348 (J.P.M.L. 2006).

After two of the three plaintiffs—Cohen and Sloan—filed

their complaints, the Service issued without notice and comment

Notice 2006-50, 2006-1 C.B. 1141 (May 26, 2006). Citing the

losses in the courts of appeals, the Notice declared that the

Service would no longer tax telephone service priced without

regard to distance, id. §§ 1(a), 4(c), and established a procedure

to refund illegally collected excise taxes, id. § 5. Taxpayers

could “request a credit or refund . . . on their 2006 Federal

income tax returns.” Id. § 5(a)(2). The Notice allowed taxpayers

to claim as a refund either the amount of taxes actually overpaid

or a safe harbor amount for which no documentation was

required. Id. § 5(c).

Cohen and Sloan amended their complaints to add claims

relating to Notice 2006-50 under the Administrative Procedure

Act (APA), 5 U.S.C. §§ 701 et seq. See Long Distance Tel. I,

Fortis, Inc. v. United States, 447 F.3d 190 (2d Cir. 2006) (per

1

curiam); Reese Bros., Inc. v. United States, 447 F.3d 229 (3d Cir.

2006); Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 (11th

Cir. 2005); Nat’l R.R. Passenger Corp. v. United States, 431 F.3d 374

(D.C. Cir. 2005); OfficeMax, Inc. v. United States, 428 F.3d 583 (6th

Cir. 2005).

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539 F. Supp. 2d at 288-89. Sloan squarely raised both

substantive and procedural challenges, while Cohen made only

a substantive APA argument. Id. The district court dismissed all

three complaints. Id. at 287. Regarding the APA claims, the

district court held that Notice 2006-50 was not judicially

reviewable because it was “a statement of internal IRS policy

without the force and effect of law.” Id. at 307; see id. at 306-11.

Plaintiffs appealed the dismissal of their APA claims, and

a panel of this court reversed, concluding that Notice 2006-50 2

“operates as a substantive rule that binds the IRS, excise tax

collectors, and taxpayers.” Cohen v. United States (Cohen I),

578 F.3d 1, 6 (D.C. Cir. 2009). The court also rejected the

Service’s arguments that the Declaratory Judgment Act, 28

U.S.C. § 2201, and the Tax Anti-Injunction Act, 26 U.S.C.

§ 7421, deprived it of jurisdiction. 578 F.3d at 12-14. Judge

Kavanaugh dissented from the panel opinion. He argued that

plaintiffs’ APA claims were barred by the DeclaratoryJudgment

Act, which prohibits suits seeking declaratory relief “with

respect to Federal taxes.” See id. at 17-20.

The full court granted the Service’s petition for rehearing en

banc to consider whether the Tax Anti-Injunction Act or the

Declaratory Judgment Act barred the court from hearing

plaintiffs’ suits. Cohen v. United States, 599 F.3d 652 (D.C. Cir.

2010) (en banc) (per curiam). The court determined that

plaintiffs’ APA claims could proceed. Cohen v. United States

(Cohen II), 650 F.3d 717, 736 (D.C. Cir. 2011). Adopting much

of the Cohen I panel’s reasoning, the en banc majority ordered

“the district court [to] consider the merits of [plaintiffs’] APA

claim on remand.” Id. Judge Kavanaugh, joined by Chief Judge

Cohen (but not Gurrola or Sloan) also appealed the dismissal of 2

his refund claims. We affirmed that part of the district court’s

judgment. Cohen v. United States, 578 F.3d 1, 14-15 (D.C. Cir. 2009).

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Sentelle and Judge Henderson, dissented, arguing that an APA

suit was unavailable because tax refund suits afforded plaintiffs

an adequate legal remedy. Id. at 738-42.

On remand, the district court held that Notice 2006-50 was

promulgated without notice and comment in violation of the

APA. In re Long-Distance Tel. Serv. Fed. Excise Tax Refund

Litig. (Long Distance Tel. II), 853 F. Supp. 2d 138, 142-43

(D.D.C. 2012). Having found a violation of the APA, the district

court prospectively vacated the Notice and remanded to the

Service. Id. at 146. The court declined to set a timetable for any

further action by the Service because no “law unequivocally

requires such action.” Id.

Plaintiffs then moved for entry of final judgment and an

interim award of attorney’s fees under the Equal Access to

Justice Act, 28 U.S.C. § 2412(b) & (d). The district court

entered final judgment in favor of plaintiff Sloan only on her

procedural APA claim. It entered judgment in favor of the

government against both Cohen, who raised only substantive

APA challenges that the court did not need to address, and

Gurrola, who failed to raise any APA arguments. In re LongDistance Tel. Serv. Fed. Excise Tax Refund Litig. (Long

Distance Tel. III), 901 F. Supp. 2d 1, 5-7 (D.D.C. 2012). The

district court denied plaintiffs’ motion for attorney’s fees. It first

found that plaintiffs could not recover fees under a “common

benefit” theory because the litigation’s costs could not be shifted

to its large, difficult-to-ascertain class of beneficiaries with any

exactitude. Id. at 8-10. The court rejected plaintiffs’ alternative

argument for fees under 28 U.S.C. § 2412(d) because it found

the government’s position was “substantially justified.” Id. at

11-12. Plaintiffs have appealed from the court’s refusal to direct

the Service on remand to issue a refund rule and from its denial

of their interim request for fees.

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II.

The government argues that we have no jurisdiction to hear

plaintiffs’ appeal because district court orders remanding to

agencies are not final appealable decisions. See 28 U.S.C.

§ 1291; Sierra Club v. USDA, 716 F.3d 653, 656-57 (D.C. Cir.

2013). Typically, that is true. A remand order usually allows the 3

agency to correct mistakes in earlier proceedings. Delaying

review prevents duplicative appeals from both a district court’s

remand order and an agency’s later action. See In re St. Charles

Pres. Investors, Ltd., 916 F.2d 727, 729 (D.C. Cir. 1990) (per

curiam).

But the rule is not absolute. The government may appeal

these sorts of remand orders because, unlike most private

parties, the government may wind up with “no opportunity to

appeal” later, after it has conducted proceedings in compliance

with the remand order. Occidental Petroleum Corp. v. SEC, 873

F.2d 325, 330 (D.C. Cir. 1989); see Sierra Club, 716 F.3d at

657. Plaintiffs here face a similar predicament. The Service has

not taken any reviewable action in the two years since the

district court’s remand order. Indeed the Service has no reason

to act. The three-year statute of limitations for filing refund

claims, 26 U.S.C. § 6511(a), has likely expired for most

potential claimants and there is no need to streamline the refund

process for hundreds of millions of taxpayers as there was when

Notice 2006-50 issued eight years ago. We find it particularly

important that at oral argument government counsel conceded

that the Service is “not planning” to engage in future rulemaking

on the subject. Oral Arg. Tr. at 23:16. In these unusual

circumstances, treating the district court’s remand order as

Plaintiffs do not argue that the denial of attorney’s fees is, in 3

itself, a final appealable decision. See Pigford v. Veneman, 369 F.3d

545 (D.C. Cir. 2004).

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unappealable would “effectivelypreclude[]” plaintiffs from ever

challenging the district court’s decisions. Sierra Club, 716 F.3d

at 658; see Ringsby Truck Lines, Inc. v. United States, 490 F.2d

620 (10th Cir. 1974).

We may, in any case, bypass complex questions dealing

with appellate jurisdiction when addressing the merits would not

require us to “reach[] a question of law that otherwise would

have gone unaddressed.” See Sherrod v. Breitbart, 720 F.3d 932,

936-37 (D.C. Cir. 2013) (quoting Steel Co. v. Citizens for a

Better Env’t, 523 U.S. 83, 98 (1988)). The law governing

plaintiffs’ challenges is well-established and renders the merits

“plainly insubstantial.” Id. (quoting Norton v. Matthews, 427

U.S. 524, 530 (1976)). In such a case we may proceed to decide

the merits.

The Supreme Court has endorsed this “practical” approach

to finality, particularly in the “twilight zone” where “it is

impossible to devise a formula to resolve all marginal cases.”

Gillespie v. U.S. Steel Corp., 379 U.S. 148, 152 (1964); see also

15A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD

H.COOPER, FED.PRACTICE&PROCEDURE:JURISDICTION§ 3913

(2d ed. 1992). We therefore turn to the merits of plaintiffs’

claims, recognizing that in the mine run of decisions remanding

to an agency, § 1291 will foreclose a private-party appeal.

III.

Plaintiffs allege that the district court erred in vacating

Notice 2006-50 and remanding, without specifically instructing

the Service to promulgate a new refund procedure. When, as

here, a rule is promulgated without notice and comment, the

APA directs the court to “hold unlawful and set aside [the]

agency action.” 5 U.S.C. § 706(2). The APA also permits a court

to “compel agency action unlawfully withheld.” Id. § 706(1).

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But that provision applies only to “discrete action” that is

“legally required . . . about which an official had no discretion

whatever.” Norton v. S. Utah Wilderness Alliance, 542 U.S. 55,

63-64 (2004) (internal brackets and quotation marks omitted).

Consequently, courts issue “detailed remedial orders” to an

agency “[o]nly in extraordinary circumstances.” N.C. Fisheries

Ass’n v. Gutierrez, 550 F.3d 16, 20 (D.C. Cir. 2008).

Plaintiffs have not satisfied § 706(1)’s exacting

requirements. 26 U.S.C. § 7422(a), which plaintiffs cite, at most

requires some form of tax refund procedure. Yet one already

exists. See 26 C.F.R. §§ 301.6401-1 et seq. Section 7422 does

not come close to requiring what plaintiffs seek—a specific

refund procedure for the telephone excise tax. Even if the code

did require some excise-tax-specific procedure, it affords the

Secretary of the Treasury great discretion to design the details:

what procedural requirements to impose, how much time must

elapse before a claimant may sue, and which forms may be used.

Cf. Comm’r v. Portland Cement Co., 450 U.S. 156, 169 (1981)

(noting the Court’s “customary deference” to treasury regulations

administering the tax code). Under Norton, that discretion

forecloses the detailed order plaintiffs seek. 542 U.S. at 63-64.

Plaintiffs argue that here, unlike in Norton, the Service has

already acted and therefore must correct its error. But that

distinction—between acting and failing to act—is irrelevant

under the APA. Courts review both types of “agency action” the

same way. Id. at 62 (quoting 5 U.S.C. §§ 702, 704, 706). A

court’s authority to remedy either type of error depends entirely

on the underlying statutory obligation of the agency. Id. at 62-

63. Here, the only statutory failure was of notice and comment.

Absent a statutory duty to promulgate a new rule, a court cannot

order it. 

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IV. 

A.

This brings us to the request for attorney’s fees. The

government contends that plaintiffs may recover attorney’s fees

only under 26 U.S.C. § 7430, which applies to “proceeding[s] . . .

[brought] in connection with the determination, collection, or

refund of any tax.” Plaintiffs argue that the general fees

provisions of the Equal Access to Justice Act, 28 U.S.C.

§ 2412(b) & (d), apply.

Both statutes allow only a “prevailing party” to recover

fees. A prevailing party is one who obtains a “material alteration

of the legal relationship of the parties” through a “judgment on

the merits” or a “settlement agreement enforced through a

consent decree.” Buckhannon Bd. & Care Home, Inc. v. W. Va.

Dep’t of Health & Human Res., 532 U.S. 598, 604 (2001)

(internal quotation marks omitted). Gurrola and Cohen, having

failed to obtain either judgments in their favor or settlements,

are not prevailing parties. Long Distance Tel. III, 901 F. Supp.

2d at 11.

Plaintiffs protest that this reasoning is overly formalistic

because both Gurrola and Cohen raised potentially meritorious

substantive challenges to Notice 2006-50 that the district court

never reached. We disagree. One does not become a prevailing

party “by simply filing a nonfrivolous but nonetheless

potentially meritless lawsuit (it will never be determined) . . .

without obtaining any judicial relief.” Buckhannon Bd. & Care

Home, 532 U.S. at 606. Gurrola and Cohen never obtained

“judicial relief” and so they are not entitled to fees. 

Sloan is a prevailing party. But we do not decide whether

her request for fees is governed by 26 U.S.C. § 7430 or 28

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U.S.C. § 2412 because she cannot succeed under either

provision. A party may not recover fees under § 7430 without

first exhausting administrative remedies. Sloan does not argue

that she has done so here. That leaves § 2412. 

B.

Sloan argues that she may recover attorney’s fees under 28

U.S.C. § 2412(b), which makes the government liable for fees

“to the same extent that any other party would be liable under

the common law.” She invokes the common benefit theory,

which applies when “the burden of litigation . . . benefitted

others who in equity should share the expenses.” 10 CHARLES

ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE,

FEDERAL PRACTICE&PROCEDURE:CIVIL§ 2675 (3d ed. 1998).

But that theory “ill suits litigation in which the purported

benefits accrue to the general public” and is available only when

“the class[] of beneficiaries [is] small in number and easily

identifiable,” “[t]he benefits c[an] be traced with some accuracy,

and there [i]s reason for confidence that the costs c[an] indeed

be shifted with some exactitude to those benefiting.” Alyeska

Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 264 n.39

(1975); see also Grace v. Burger, 763 F.2d 457, 459-60 (D.C.

Cir. 1985) (holding that “the common benefit theory is

inapplicable in cases . . . where plaintiffs seek injunctive relief

against the government” (quoting Trujillo v. Heckler, 587 F.

Supp. 928, 930 (D. Colo. 1984))).

None of the Alyeska Pipeline criteria are satisfied here. The

class of beneficiaries of this litigation is potentially massive,

including millions of taxpayers who used telephones. But that

class is nearly impossible to ascertain with any precision

because it excludes taxpayers who already claimed a refund and

those who were never entitled to a refund. Even if the class

could be identified, the benefits of the litigation cannot be

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estimated, much less determined with exactitude. That is

because Sloan did not secure refunds but, at most, made it

slightly easier to obtain one. Sloan makes no attempt to estimate

the value of the procedural benefit her litigation actually

conferred.4

C.

Sloan also argues that she is entitled to attorney’s fees under

28 U.S.C. § 2412(d), which awards fees to parties prevailing

against the government “unless the court finds that the position

of the United States was substantially justified.” Whether the

government’s position “was substantially justified shall be

determined on the basis of the record (including . . . action or

failure to act by the agency upon which the civil action is based)

which is made in the civil action for which fees and other

expenses are sought.” Id. § 2412(d)(1)(B). The government’s

position is substantially justified if it is “justified in substance or

in the main—that is, justified to a degree that could satisfy a

reasonable person.” LePage’s 2000, Inc. v. Postal Regulatory

Comm’n, 674 F.3d 862, 866 (D.C. Cir. 2012) (quoting Pierce v.

Underwood, 487 U.S. 552, 565 (1988)). Substantial justification

is a “multifarious . . . question, little susceptible of useful

generalization.” Underwood, 487 U.S. at 562. Because the

inquiry is fact-intensive and “the district court may have insights

not conveyed by the record” we review decisions awarding or

denying fees under 28 U.S.C. § 2412(d) for abuse of discretion.

Id. at 557-63.

In her reply brief Sloan seems to suggest Alyeska Pipeline’s 4

criteria do not apply because the government is not entitled to the

money it collected under the excise tax. Sloan has not cited, and we

have not found, any authority supporting that argument.

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Although the question is close we do not think the district

court abused its discretion in denying fees. The district court

found the government’s position to be substantially justified

because several circuit judges agreed with the government and

dissented from the Cohen I and Cohen II opinions. Long

Distance Tel. III, 901 F. Supp. 2d at 12. 

Sloan cites opinions suggesting that an earlier dissent does

not conclusively show the government’s position was

substantially justified. But those cases acknowledge that prior

dissents are still “properly considered when conducting th[e

substantial justification] inquiry.” Friends of Boundary Waters

Wilderness v. Thomas, 53 F.3d 881, 885 (8th Cir. 1995); see id.

at 884-86; EEOC v. Clay Printing Co., 13 F.3d 813, 816 (4th

Cir.1994). 

Here, the existence of several dissenting opinions is

particularly persuasive evidence of substantial justification for

two reasons. First, the court granted en banc rehearing, which is

reserved for “question[s] of exceptional importance” or to

preserve “uniformity of the court’s decisions.” FED. R. APP. P.

35(a). If existing law had plainly favored plaintiffs, there would

have been no cause for en banc review, even of a high-stakes

problem. See Coal. for Responsible Regulation, Inc. v. EPA, No.

09-1322, 2012 WL6621785 (D.C. Cir. Dec. 20, 2012) (Sentelle,

C.J., concurring in the denials of rehearing en banc). 

Second, the legal issues in the earlier appeals were difficult

and amenable to reasonable disagreement. Whether Notice

2006-50 was a reviewable final rule or a policy statement,

Cohen I, 578 F.3d at 6-12, is an amorphous and challenging

legal question. See Cmty. Nutrition Inst. v. Young, 818 F.2d 943,

946 (D.C. Cir. 1987). Similarly, the meaning of the Declaratory

Judgment Act is hardly self-evident, because the Act’s text is

“intrinsically ambiguous.” See Cohen II, 650 F.3d at 727-31.

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Against that evidence of substantial justification, Sloan

argues that the Service unjustifiably failed to acquiesce to the

Eleventh Circuit’s American Bankers decision invalidating the

excise tax. See Am. Bankers Ins. Grp. v. United States, 408 F.3d

1328 (11th Cir. 2005). But that conduct is irrelevant because it

did not occur “in the civil action for which fees . . . are sought.”

28 U.S.C. § 2412(d)(1)(B). Furthermore, Sloan conceded at oral

argument that the government complied with the American

Bankers court’s order. See Oral Arg. Tr. at 14:20-17:5. We have

recognized agencies’ rights not to acquiesce in one court’s legal

conclusions in a different case. Indep. Petroleum Ass’n of Am.

v. Babbitt, 92 F.3d 1248, 1261-62 (D.C. Cir. 1996) (Rogers, J.,

dissenting); see id. at 1260 n.3 (majority agreeing).

Sloan also argues that the Service’s position was not

substantially justified because it promulgated Notice 2006-50

without notice and comment. Standing alone, a notice and

comment violation establishes that the government’s conduct

was arbitrary and capricious. But “arbitrary and capricious

conduct is not per se unreasonable” for purposes of attorney’s

fees. Andrew v. Bowen, 837 F.2d 875, 878 (9th Cir. 1988).

It is true that the panel and en banc majority opinions

described the Service’s position in harsh terms. On that basis,

one might reasonably conclude that the Service’s position was

not substantially justified. See, e.g., LePage’s 2000, 674 F.3d at

867-68. But one might also reasonably conclude that, absent

other factors, dissenting opinions on difficult questions are

sufficient evidence of substantial justification. We therefore

cannot say that the district court abused its discretion. The

judgment below is

Affirmed.

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 BROWN, Circuit Judge, concurring in part and dissenting 

in part. This is a complicated and frustrating case. It has 

lasted five years and accomplished nothing. In this litigation, 

the Internal Revenue Service (IRS) has lost every round, but, 

as the court’s opinion confirms, the odds are always with the 

house. 

Round one was Cohen I, 578 F.3d 1 (D.C. Cir. 2009), 

where we determined the taxpayers could move forward with 

a challenge to Notice 2006-50. The Service, rocked but 

undaunted, tried again with a larger group of judges in Cohen 

II, 650 F.3d 717 (D.C. Cir. 2011) (en banc), arguing it was 

immune to suit outside the narrow confines of the refund 

process. Again, it failed—by split decision, the taxpayers 

won. On remand—round three—the district court found the 

IRS had violated the APA and vacated the offending notice, 

but it declined to set any timetable for further action. 

The Service announced the demise of the refund notice 

and resolutely refused to take any other remedial action. 

Though there is no dispute about the unauthorized nature of 

the exaction, it intends to keep the unrefunded portions of its 

ill-gotten gains—a few billion dollars. Indeed, the Service 

fares better than the Las Vegas casinos: even when they lose, 

they win. Since no law “unequivocally” requires the IRS to 

do the right thing, they have the discretion to do wrong. The 

taxpayers are out of luck. It was not always thus. 

 I join—without reservation—the court’s jurisdictional 

conclusion. As for the merits, however, I cannot say the 

same. The Service’s recalcitrance is disconcerting, and I do 

not share my colleagues’ confidence that no law imposes a 

duty upon the Service to create a workable refund scheme. In 

addition, I view the majority’s EAJA analysis as reasonable, 

but incomplete. I therefore respectfully dissent. 

 

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2 

I 

 This appeal is not a refund case. But it is about refunds. 

It has long been understood that there is a part-legal, partequitable right to reclaim what the government has 

wrongfully taken away. Cf. Stone v. White, 301 U.S. 532, 534 

(1937) (“The action, brought to recover a tax erroneously 

paid, although an action at law, is equitable in its function.”). 

Before Congress let down a narrow drawbridge into the 

otherwise impenetrable fortress of sovereign immunity so that 

taxpayers could seek recovery directly from the United States, 

federal courts entertained indebitatus assumpsit suits against 

the collectors whom the taxpayers paid. See City of Phila. v. 

The Collector, 72 U.S. (5 Wall.) 720, 732–33 (1866) (“[The] 

[a]ppropriate remedy to recover . . . money paid under protest 

on account of duties or taxes erroneously or illegally assessed, 

is an action of assumpsit for money had and received.”). This 

curious fiction existed as an end-run around sovereign 

immunity, see id. at 733, and was long recognized as such, 

see George Moore Ice Cream Co. v. Rose, 289 U.S. 373, 382–

83 (1933) (“A suit against a collector . . . is to-day an 

anomalous relic of bygone modes of thought . . . .”). 

The fiction, like most, caused a few headaches. See 

William T. Plumb, Jr., Refund Suits Against Collectors, 60

HARV. L. REV. 685, 697–98 (1947) (describing the procedural 

pitfalls commonly encountered by taxpayers attempting to 

obtain refunds from collectors). But it endured because 

taxpayers needed some workable mechanism to recover funds 

illegally demanded. Refunds were considered to be 

obligations of “natural justice and equity,” not gifts of 

statutory grace. See Cary v. Curtis, 44 U.S. (3 How.) 236, 

246–47 (1845); see also Bull v. United States, 295 U.S. 247, 

260 (1935) (“In a proceeding for the collection of estate tax, 

the United States through a palpable mistake took more than it 

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3 

was entitled to. Retention of the money was against morality 

and conscience.” (emphasis added)). And that is no less true 

today. 

 The Service has maintained it has no affirmative 

obligation to provide refunds. Nearly 170 years ago, Justice 

Story pointed out the problem with the Service’s position. 

When the Court in Cary v. Curtis, 44 U.S. (3 How.) 236 

(1845), interpreted a newly revised statute as precluding suits 

against collectors, see id. at 244, Justice Story explained that 

depriving taxpayers of all recourse for challenging wrongful 

collections is repulsive to the constitutional tradition. To him, 

the question was 

[w]hether Congress have a right to take from the citizens 

all right of action in any court to recover back money 

claimed illegally, and extorted by compulsion, by its 

officers under color of law, but without any legal 

authority, and thus to deny them all remedy for an 

admitted wrong, and to clothe the Secretary of the 

Treasury with the sole and exclusive authority to 

withhold or restore that money according to his own 

notions of justice or right? 

Id. at 253 (Story, J., dissenting). He never arrived at an 

answer, but he felt no need to—the idea was so unimaginable 

that Justice Story felt Congress could not have possibly 

intended a dramatic measure that would trigger a structural 

constitutional crisis. See id. at 257. In the end, he was 

right—Congress apparently did not intend the bar against 

collector suits, and it patched the law in record time. See 

George Stewart Brown, A Dissenting Opinion of Mr. Justice 

Story Enacted as Law Within Thirty-Six Days, 26 VA. L. REV.

759, 760 (1940) (“In thirty-six days Congress passed, and 

President Tyler signed, [the law] which recalled the majority 

USCA Case #12-5380 Document #1492206 Filed: 05/09/2014 Page 16 of 24
4 

ruling in [Cary] and made Judge Story’s opinion the law of 

the land.”). 

As the Service has made amply clear, there are “offlabel” ways a taxpayer can take back the money he never 

owed in the first place. See Appellee’s Br. at 22 (“[The 

Service] announced that it would continue to process claims 

for refund of the defunct telephone tax, either on Form 843 or 

on the 1040 series of income tax returns . . . .”).1

 But this 

approach requires some faith that the Service will agree to 

honor a taxpayer’s claim without having its fingers crossed 

behind its back. It could instead choose to be capricious and 

deny the refund, citing the taxpayer’s failure to complete a 

refund process that, if depicted, looks something like an M.C. 

Escher drawing. Cf. Cohen I, 578 F.3d at 11 (“According to 

the IRS, taxpayers should have realized all the options the 

Service said were closed to them—using forms that proclaim 

their inapplicability in bold letter or filing informal claims 

that could not be perfected—were nonetheless sufficient to 

fulfill their administrative refund obligations and to serve as a 

prerequisite to judicial review.”). And the Service could point 

to that failure as the basis for denying judicial review. See id.

at 10 (“The ‘usual statutory procedures for claiming a refund 

of tax,’ provide no avenue by which individual taxpayers can 

 

1

 As we noted in Cohen I, Form 843 facially does not allow for an 

excise-tax refund claim. See 578 F.3d at 9–10. It is unclear 

whether the 1040 series is still a viable claim mechanism, as the 

regulation that permitted the use of that series for excise-tax refund 

claims was prospectively vacated. See I.R.S. Notice 2006-50 

(“Forms 1040 (series), 1041, 1065, 1120 (series), and 990-T will 

include a line for requesting the overpayment amount.”). 

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5 

fulfill their obligations in order to seek judicial review.” 

(citation omitted)).2

 

What a racket. To quote Justice Story, “[w]here then is 

the remedy which is supposed to exist?” Cary, 44 U.S. at 256 

(Story, J., dissenting). The Service’s answer? Refunds are 

given by its grace alone. See Appellee’s Br. at 37–38 

(“Nothing in the Internal Revenue Code or regulations 

thereunder requires the IRS to develop a scheme to achieve 

the making of refunds of any tax to taxpayers who have made 

no claim.”). But, once again, Justice Story provides an apt 

rejoinder: 

No court, no jury, nay, not even the ordinary rules of 

evidence, are to pass between [the Treasury] and the 

injured claimant, to try his rights or to secure him 

adequate redress. . . . So that in most, if not in all cases 

where a controversy arises, the Secretary of the Treasury 

has already pronounced his own judgment. Of what use 

then, practically speaking, is the appeal to him, since he 

has already given his decision? 

Cary, 44 U.S. at 256–57. 

 To remedy an agency’s failure to act, the agency’s action 

must be “legally required” or “unlawfully withheld.” Norton 

v. S. Utah Wilderness Alliance, 542 U.S. 55, 63 (2004). 

Nowhere in the APA does it say that the obligation must 

inhere in statute, as the court seems to suggest. See Maj. Op. 

at 8 (“A court’s authority to remedy either type of error 

depends entirely on the underlying statutory obligation of the 

 

2

 For the plaintiffs of this case, of course, the Service will suggest 

the statute of limitations is an insurmountable hurdle barring any 

further efforts at obtaining redress. 

USCA Case #12-5380 Document #1492206 Filed: 05/09/2014 Page 18 of 24
6 

agency.” (emphasis added)). If the structure of the 

Constitution—and perhaps other provisions therein—compels 

an agency to provide a workable refund scheme, that should 

suffice for the APA. After all, the Constitution is law, and a 

supreme one at that. See U.S. CONST. art. VI, cl. 2. 

 The Appellants’ position—and the court’s arguendo 

assumption—that § 7422(a) imposes some sort of duty to 

provide a workable refund scheme—seems dubious. 

Nowadays, to treat a statute as both jurisdictional and 

substantive, as the Appellants suggest we do with § 7422(a), 

is odd. See Arbaugh v. Y&H Corp., 546 U.S. 500, 516 (2006) 

(“But when Congress does not rank a statutory limitation on 

coverage as jurisdictional, courts should treat the restriction as 

nonjurisdictional in character.”); see also id. (noting “the 

threshold number of employees for application of Title VII is 

an element of a plaintiff’s claim for relief, not a jurisdictional 

issue”). But see United States v. Mize, 756 F.2d 353, 355–56 

(5th Cir. 1985) (concluding the definition of “member bank” 

and “insured bank” for purposes of a bank fraud statute 

“serve[d] a dual purpose, constituting both a jurisdictional 

predicate and an essential substantive element of the criminal 

offenses”), overruled on other grounds by United States v. 

Olano, 507 U.S. 725 (1993). But what about the Tax Code 

itself, in addition to the long-understood common law refund 

right? Surely, if the Code refers to a right of refund in all but 

substance, we can infer that right and a duty arising 

therefrom. See, e.g., 26 U.S.C. §§ 6415, 6511. After all, in 

City of Philadelphia v. The Collector, 72 U.S. (5 Wall.) 720 

(1866), that is precisely what the Court did—infer the right 

from the statutory scheme. See id. at 730 (“On the contrary, 

the several acts of Congress for the assessment and collection 

of internal duties contain many provisions wholly consistent 

with any such theory, and which, when considered together, 

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7 

afford an entirely satisfactory basis for the opposite 

conclusion.”). 

 The majority alternatively posits the Secretary has 

fulfilled whatever duty is owed; because he possesses “great 

discretion to design the details,” no further action can be 

compelled. See Maj. Op. at 8. The duty, however, is to create 

a workable refund scheme. What might work well to correct 

an individual overpayment is a completely inadequate 

response to a systemic irregularity. If one looks at the 

Service’s voluminous forms, announcements, notices, and 

rules, one would see a labyrinth with no exit. That makes me 

quite reluctant to join the court’s conclusion about the 

adequacy of the district court’s remand order. 

II 

 Nor do I think the mere presence of a dissenting opinion 

gives “substantial justification” to the Government’s position. 

The district court concluded there was substantial justification 

because of (1) a reasoned district court opinion that we 

ultimately disagreed with; and (2) a dissent by three members 

of an en banc court. The court’s opinion relies on only the 

latter. But neither consideration should be the basis of 

denying an EAJA award. See United States v. Paisley, 957 

F.2d 1161, 1167 (4th Cir. 1992) (“As a practical matter, the 

substantial justification issue cannot be transformed into an 

up-or-down judgment on the relative reasoning powers of 

Article III judges who may have disagreed on the merits of a 

Government litigation position.”). 

 First, Judge Urbina’s opinion on the plaintiffs’ APA 

claims cannot be the basis for determining the Government’s 

position was substantially justified. “The most powerful 

indicator of the reasonableness of an ultimately rejected 

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8 

position is a decision on the merits and the rationale which 

supports that decision.” Friends of Boundary Waters 

Wilderness v. Thomas, 53 F.3d 881, 885 (8th Cir. 1995). If a 

district court’s contrary opinion can provide the Government 

with substantial justification, then a district court theoretically 

can never award EAJA fees in cases involving an appeal that 

does not result in affirmance. Surely, attorney’s fees do not 

depend upon a plaintiff’s success at every stage of litigation. 

 As for the en banc dissent, I do not think it to be as potent 

as the court makes it out to be. For purposes of the EAJA, I 

put little stock into the “exceptional importance” language of 

Rule 35. Improbable as it may sound, there exists a 

possibility that a case presenting a question of exceptional 

importance can nevertheless draw unanimous agreement from 

an en banc court. See, e.g., In re Sealed Case No. 97-3112, 

181 F.3d 128 (D.C. Cir. 1999) (en banc) (deciding a case with 

no dissents or concurrences in the judgment only, despite a 

contrary panel opinion); see also id. at 142 (Edwards, C.J. and 

Tatel, J., concurring) (“We originally viewed this case as 

turning on the difference between two distinct departure 

factors . . . but now we are persuaded otherwise.”); id. at 144 

(Sentelle, J., concurring) (“I do not disagree with any part of 

the court’s thorough opinion affirming the district court.”); id.

at 145 (Henderson, J., concurring) (“I wholeheartedly agree 

with the majority’s holding which disposes of this case with 

clarity and in full accord with the decisions of courts, 

including ours, that have ruled on the issue.”). 

Rehearing or no rehearing, a district court should 

certainly consider whether there is a dissenting opinion in 

appellate consideration of the merits of a case. But dissent 

alone cannot provide the Government with substantial 

justification. See EEOC v. Clay Printing Co., 13 F.3d 813, 

816 (4th Cir. 1994) (“We agree that the dissenting judge’s 

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9 

views should be considered, but this factor alone (and it is 

alone) is not enough to convince us that the district court’s 

assessment of the case constituted an abuse of discretion.”). 

This is especially true when the Government’s lack of 

justification is plainly obvious. See Friends of Boundary 

Waters Wilderness, 53 F.3d at 885. 

 But the majority’s reliance on judicial dissent is but a 

quibble. The Service’s unwillingness to own up to its 

confusing and dysfunctional “refund scheme” is cause enough 

for granting an EAJA award. 

The EAJA requires the Government to act reasonably 

during all stages of litigation, from the inception of agency 

action (or lack thereof) to the conclusion of judicial review. 

See Hill v. Gould, 555 F.3d 1003, 1006 (D.C. Cir. 2009) 

(noting the Government’s position is “substantially justified” 

if “the underlying agency action and the legal arguments in 

defense of the action had ‘a reasonable basis both in law and 

fact’” (quoting Pierce v. Underwood, 487 U.S. 552, 565 

(1988))); see also U.S. SEC v. Zahareas, 374 F.3d 624, 627 

(8th Cir. 2004) (“[T]he government must show ‘that it acted 

reasonably at all stages of the litigation.” (citation omitted)); 

Keasler v. United States, 766 F.2d 1227, 1231 (8th Cir. 1985) 

(“[T]he ‘position of the United States’ includes the 

government’s position at both the prelitigation and litigation 

stages.”). Here, the Service may have been justified as to the 

jurisdictional issue. But what about the events that led up to 

this case, which must be considered under the EAJA? 

 Throughout this litigation, one of the Service’s main 

contentions has been that refunds are readily available under 

its current schemes, even notwithstanding Notice 2006-50. In 

fact, that’s not true at all. The confusing morass of a process 

that we identified in Cohen I still exists, having been present 

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10 

in this case since its genesis. See Oral Arg. Tr. at 33 

(acknowledging the “confusing language” of Form 843 and 

conceding the Service’s failure to rectify the confusion). 

Compare Oral Arg. Tr. at 26 (“[F]or taxes other than income 

taxes, which would include this excise tax[,] you use form 

843 . . . .”), with I.R.S. Announcement 2012-16, 2012-18 

I.R.B. 876 (Apr. 5, 2012) (“Taxpayers should make their 

requests on the appropriate 2006 income tax return. . . . 

Taxpayers who wish to request actual amounts of excise taxes 

paid rather than the safe harbor amounts described in Notice 

2007-11 should use Form 8913 . . . .”), I.R.S. Form 843, 

Claim for Refund and Request for Abatement (“Do not use 

Form 843 if your claim or request involves . . . an 

overpayment of excise taxes reported on Form(s) 11-C, 720, 

730, or 2290.”), and Cohen I, 578 F.3d at 9–10 (“Form 843, 

however, does not permit this type of refund claim.”). It is 

one thing to say the regulatory scheme provides for a 

workable refund process; it is another to present a procedural 

boondoggle, where refunds are available only with the 

governmental equivalent of a wink and nod. 

 So when the Service says a workable refund scheme 

exists under the current legal and regulatory regime, its 

contention is, at best, unreasonable, and, at worst, dishonest. 

Though it may be only a small part of the Service’s case, that 

is reason enough for me to conclude the district court abused 

its discretion in declining to award fees to the Sloan plaintiffs. 

III 

 Once upon a time, public law concerned itself with 

notions of what was morally right, not just what was 

minimally required. But, as counsel for the Service has 

repeatedly reminded us throughout this litigation, those days 

are part of the dim (and not to be recaptured) past. See 

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11 

Appellee’s Br. at 37 (“After making the concession that 

limited the scope of ‘toll telephone service’ to which I.R.C. § 

4252(b)(1) applied, the IRS was by no means required to 

notify every taxpayer potentially entitled to a refund, or even 

to publicize the availability of refunds.”). These days, no 

matter how unwarranted its exactions, whether the Service 

returns anything to the taxpayers—when circumstances do not 

fit the usual paradigm—is a decision within its sole discretion. 

Following the Service’s reasoning to its logical conclusion, 

the more larcenously it behaves, the lighter its obligations to 

plundered taxpayers become. No doubt this is a sign of the 

times, but it seems more an artifact of an administrative state 

gone deeply awry. 

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