Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-02167/USCOURTS-casd-3_06-cv-02167-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 05:552 Freedom of Information Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ROBERT M. SCHARRINGHAUSEN,

Plaintiff,

CASE NO. 06CV2167 JLS (CAB)

ORDER (1) GRANTING

DEFENDANT’S MOTION FOR

JUDGMENT ON THE

PLEADINGS WITH LEAVE TO

AMEND, and (2) DENYING

DEFENDANT’S MOTION FOR

SUMMARY JUDGMENT

WITHOUT PREJUDICE

(Doc. Nos. 19, 23)

vs.

UNITED STATES OF AMERICA and

INTERNAL REVENUE SERVICE,

Defendants.

Presently before the Court is the United States of America’s (“defendant”) motion to

dismiss for failure to state a claim Robert M. Scharringhausen’s (“plaintiff”) first cause of action

for an unauthorized collection action. (Doc. No. 19.) Because defendant first answered the

complaint before filing the motion, the motion was untimely. Nonetheless, the Hon. M. James

Lorenz previously ruled that defendant’s motion would not be stricken, but instead construed as a

motion for judgment on the pleadings. (Doc. No. 23.) For the reasons stated below, the Court

GRANTS defendant’s motion. 

Although the parties agreed to stay discovery pending the Court’s ruling on defendant’s

motion for judgment on the pleadings, defendant has also filed a motion for summary judgment on

plaintiff’s second cause of action for a violation of the Freedom of Information Act (“FOIA”). For

the reasons stated below, the Court DENIES WITHOUT PREJUDICE the motion for summary

Case 3:06-cv-02167-JLS-CAB Document 38 Filed 03/13/08 Page 1 of 9
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judgment, pursuant to FRCP 56(f). 

BACKGROUND

A. Factual Background

On March 20, 2003, the United States (the defendant in this action) filed a complaint in this

district court against Scharringhausen (the plaintiff in this action) to reduce to judgment

outstanding federal tax assessments, including plaintiff’s personal income tax liabilities for 1991-

92 and trust fund recovery penalties for periods ending December 31, 1990 and September 30,

1991. (Compl. ¶ 1; Am. Answer ¶ 1; see 03cv551, Doc. No. 1 ¶¶ 8, 15, 21, 27.) On November 4,

2003, default judgment was entered against Scharringhausen in the amount of $488,307.96. 

(Compl. ¶ 2; Am. Answer ¶ 2; see 03cv551, Doc. No. 17.) On April 19, 2004, the United States’s

motion to compel post-judgment discovery was granted. (Compl. ¶ 4; Am. Answer ¶ 4; see

03cv551, Doc. No. 26.) At the hearing on the discovery motion, Scharringhausen appeared for the

first time. (Memo. ISO MJP, at 2-3.) Subsequently, Scharringhausen was ordered to pay

$2,092.93 of fees and costs that the United States reasonably incurred in bringing its discovery

motion. (Compl. ¶ 4; Answer ¶ 4; see 03cv551, Doc. No. 30.) After tolling the deadline for filing

a motion for reconsideration, the court ultimately denied Scharringhausen’s motion to set aside the

default judgment. (Compl. ¶¶ 8, 10; Am. Answer ¶¶ 8, 10; see 03cv551, Doc. Nos. 67 & 85.) 

Scharringhausen appealed the Order denying the motion to set aside the default judgment, and the

Ninth Circuit affirmed. (Compl. ¶ 12; Memo. ISO MJP, at 3; see 03cv551, Doc. No. 92.) 

On October 13, 2005, Scharringhausen’s counsel submitted an FOIA request to the IRS

Disclosure Office for “all documents relating to the Trust Fund Recovery Penalties for tax period

ending December 31, 1990 and September 30, 1991 which were assessed against Mr.

Scharringhausen relating to the entities, Scharringhausen, Inc. and Pantera Construction, Inc.” 

(Compl. ¶ 13 & Exhibit 1; Am. Answer ¶ 13.) IRS Disclosure Officer Gary T. Prutsman

responded to counsel’s FOIA request on November 2, 2005, representing that, within petitioner’s

160-page file, four pages were “sanitized” and twenty-three pages withheld pursuant to various

FOIA exemptions. (Compl. ¶ 14 & Exhibit 2.) The withheld pages included the Suit Letter that

the IRS prepared when it referred the matter to the Department of Justice to institute the civil

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action to reduce the unpaid assessments to judgment. (Id. Exhibits 1-2.) The IRS response further

indicated that Scharringhuasen’s 1990 trust fund recovery penalty file was “destroyed per normal

records retention policies.” (Id. Exhibit 2.) 

On December 9, 2005, Scharringhausen appealed the Disclosure Officer’s decision on the

FOIA request. (Compl. ¶ 15 & Exhibit 3; Am. Answer ¶ 15.) Appeals Team Manager Marge

Field responded to the appeal in writing on February 3, 2006, releasing two previously redacted

pages in their entirety but otherwise affirming the Disclosure Officer’s decision to withhold and

redact the remaining pages. (Id. Exhibit 4.) Ms. Field also confirmed that the IRS had no records

relevant to Scharringhausen’s trust fund recovery penalty file. (Id.) Scharringhausen then filed an

administrative claim for damages on March 17, 2006. (Compl. ¶ 18; Am. Answer ¶ 18.) After six

months passed with no response from the IRS (Def. Memo. ISO MJP, at 3), Scharringhausen

initiated the present action.

B. Procedural Background

On September 29, 2006, plaintiff filed his complaint. (Doc. No. 1.) The first cause of

action sought civil damages for an unlawful collection action. (Id. at 4.) Specifically, plaintiff

alleged that the IRS authorized the Department of Justice to initiate the 2003 action, even though

the IRS knew that it lacked evidentiary support for its trust fund recovery penalties claim. (Id. ¶

22.) The second cause of action requested production of withheld records pursuant to the FOIA. 

(Id. at 5.) 

Defendant answered the complaint on December 21, 2006 and amended its answer by

leave of Court on May 2, 2007. (Doc. Nos. 3 & 18.) Defendant then filed a motion to dismiss the

first cause of action pursuant to FRCP 12(b)(6) on June 26, 2007. (Doc. No. 19.) The Hon. M.

James Lorenz issued an Order to show cause on June 28, 2007, demanding that defendant show

why its motion should not be stricken as untimely. (Doc. No. 20.) After receiving briefs from

each side, Judge Lorenz ruled that the motion was untimely but would nonetheless be construed as

a motion for judgment pleadings pursuant to FRCP 12(c). (Doc. No. 23.) Plaintiff filed his

opposition to the motion on August 16, 2007. (Doc. No. 24.) Defendant replied on August 28,

2007. (Doc. No. 26.) After Judge Lorenz took the motion under submission, and while the motion

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remained pending, the action was reassigned the Hon. Janis L. Sammartino on October 2, 2007. 

On November 15, 2007, defendant moved for summary judgment on the second cause of

action. (Doc. No. 32.) Plaintiff filed his opposition on February 29, 2008, requesting that the

Court deny or continue the motion to give the plaintiff an opportunity to conduct discovery. (Doc.

No. 35.) Defendant filed its reply on March 7, 2008. (Doc. No. 36.) 

MOTION FOR JUDGMENT ON THE PLEADINGS

A. Legal Standard

“After the pleadings are closed, but within such time as not to delay the trial, any party

may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). A motion for judgment on the

pleadings attacks the legal sufficiency of the claims alleged in the complaint. This Court must

construe “all material allegations of the non-moving party as contained in the pleadings as true,

and [construe] the pleadings in the light most favorable to the [non-moving] party.” Doyle v.

Raley’s Inc., 158 F.3d 1012, 1014 (9th Cir. 1998). “Judgment on the pleadings is proper when the

moving party clearly establishes on the face of the pleadings that no material issue of fact remains

to be resolved and that it is entitled to judgment as a matter of law.” Hal Roach Studios, Inc. v.

Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). “The standard for granting a

Rule 12(c) motion for judgment on the pleadings is identical to that of a Rule 12(b)(6) motion for

failure to state a claim.” Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d

Cir. 2001); accord Spivey v. Ohio, 999 F. Supp. 987, 991 (N.D. Ohio 1998) (where motion for

judgment on the pleadings raises a Rule 12(b)(6) defense, court properly applies the standard for a

Rule 12(b)(6) motion).

B. Analysis

Internal Revenue Code § 7433 creates a cause of action for damages associated with an

unauthorized collection action. Subsection (a) reads, in relevant part:

If, in connection with any collection of Federal tax with respect to a taxpayer, any

officer or employee of the Internal Revenue Service recklessly or intentionally, or

by reason of negligence disregards any provision of this title, or any regulation

promulgated under this title, such taxpayer may bring a civil action for damages

against the United States in a district court of the United States.

Besides the citation to this statute (which gives life to the cause of action but otherwise imposes no

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legal duties), plaintiff fails to cite to any other statute or regulation that the IRS disregarded in

connection with the collection of federal tax from plaintiff. In Shwarz v. United States, the Ninth

Circuit affirmed the district court’s dismissal of a § 7433 cause of action for failure to state a claim

because the plaintiff alleged violations of the IRS Manual and National Policy Statement, but no

Internal Revenue Code provision or regulation. 234 F.3d 428, 433-34 (9th Cir. 2000); accord

Gonsalves v. Internal Revenue Serv., 975 F.2d 13, 16 (1st Cir. 1992) (finding that § 7433 claim

failed because it was predicated on statements in taxpayer publications, rather than a statute or

regulation); Ludtke v. United States, 84 F. Supp. 2d 294, 302 (D. Conn. 1999) (denying motion for

reconsideration of dismissal of § 7433 claim where complaint failed to cite a particular statute or

regulation); White v. Comm’r of Internal Revenue, 899 F. Supp. 767, 772 (D. Mass. 1995)

(holding that allegations of generalized “reckless” IRS conduct were insufficiently specific to

establish that the IRS disregarded a provision of the Internal Revenue Code or accompanying

regulation). 

Applied to these facts, the Court finds that plaintiff’s first cause of action is legally

insufficient because plaintiff failed to articulate the particular statute or regulation that the IRS

disregarded. Although FRCP 8(a)(2) only requires “a short and plain statement of the claim

showing that the pleader is entitled to relief,” the existing case law establishes that a § 7433 cause

of action falls short when the complaint does not cite a particular statute or regulation. E.g.,

Shwarz, 234 F.3d at 433-34. Plaintiff cites no cases where a § 7433 claim survived a Rule 12

motion without citing the applicable Internal Revenue Code provision or Treasury regulation. 

Plaintiff argues that he must conduct discovery before he can determine the specific statutes and

regulations that the IRS violated. This argument misconstrues the nature of the Rule 12 inquiry,

wherein the Court accepts all the complaint’s allegations as true and determines whether those

allegations state a claim for relief. If plaintiff discovers additional violations during discovery,

plaintiff may seek leave to amend the complaint to conform to the new evidence. However, the

Court cannot allow plaintiff to go forward unless the plaintiff first pleads a viable cause of action

for relief.

The Court rejects defendant’s argument that leave to amend should be denied because

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1

 Defendant provides no authority for its third argument that the entry of a default judgment

in the prior action categorically precludes plaintiff from bringing a § 7433 claim for any unlawful

conduct in collecting the federal tax assessments that gave rise to the prior action. Therefore, the

Court likewise finds that this argument does not preclude the Court from granting leave to amend. 

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plaintiff failed to plead legally cognizable damages. Specifically, defendant argues that plaintiff is

erroneously seeking to recover the amounts owed pursuant to lawful judgments that the

Department of Justice obtained in the March 2003 action. Defendant misunderstands the plain

language of § 7433's subsection on damages, which reads as follows:

In any action brought under subsection (a) [for unauthorized collection actions],

upon a finding of liability on the part of the defendant, the defendant shall be liable

to the plaintiff in an amount equal to the lesser of $1,000,000 ($100,000 in the case

of negligence) or the sum of—

(1) actual, direct economic damages sustained by the plaintiff as a proximate

result of the reckless or intentional or negligent actions of the officer or employee,

and

(2) the costs of the action.

26 U.S.C. § 7433(b). Even if the Court presumes that plaintiff suffered no economic damages as a

proximate result of the IRS’s liability for violating any relevant statute or regulation, plaintiff

would still be entitled to statutory damages or the costs of the civil action, whichever amount is

less.1

 

Therefore, although plaintiff’s first cause of action fails to state a claim because it does not

identify a specific statutory provision or regulation, the Court will grant plaintiff leave to amend

this cause of action.

MOTION FOR SUMMARY JUDGMENT

A. Rule 56(f) Standard

Pursuant to FRCP 56(f), “[i]f a party opposing the motion [for summary judgment] shows

by affidavit that, for specified reasons, it cannot present facts essential to justify its opposition, the

court may: (1) deny the motion[.]” Where the opposing party needs discovery to obtain essential

facts, the district court has the discretion to deny or continue the summary judgment motion. Cal.

Union Ins. Co. v. Am. Diversified Sav. Bank, 914 F.2d 1271, 1278 (9th Cir. 1990); In re Imperial

Credit Indus., Inc. Sec. Litig., 252 F. Supp. 2d 1005, 1016 (C.D. Cal. 2003). The district court

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abuses its discretion by denying further discovery where the party opposing summary judgment

has diligently pursued discovery in the past and shows how the sought discovery would preclude

summary judgment. Employers Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Clorox

Co., 353 F.3d 1125, 1130 (9th Cir. 2004) (quoting Cal. Union Ins., 914 F.2d at 1278). 

B. Analysis

Both sides represent that the parties stayed discovery pending the resolution of defendant’s

motion for judgment on the pleadings. (Pl. Opp. to MSJ, at 6; Def. Reply ISO MSJ, at 3.) At the

time that the parties stayed discovery, they had been in protracted negotiations to arrange the

deposition of Revenue Officer R. Osterhaus. (Pl. Opp. to MSJ, Exhibits A-C; Fahey Decla. ¶ 6.) 

The parties also had created a joint discovery plan naming specific witnesses. (Pl. Opp. to MSJ, at

7.) Therefore, the Court finds that plaintiff diligently pursued discovery in the past.

Plaintiff further represents that the documents actually obtained through his FOIA request

contain various codes and shorthand abbreviations. Plaintiff claims that deposing the IRS

person(s) more knowledgeable may assist plaintiff in understanding the significance of the

documents actually received and arguing why the IRS also should have provided access to the

withheld documents. (Pl. Opp. to MSJ, at 8.) Also, the joint discovery plan identified two

witnesses who submitted declarations in support of defendant’s motion for summary judgment:

Jason A. Bremer, branch docket attorney in the IRS Office of the Associate Chief Counsel, and

Joann Carr, advisory group manager in the IRS Business/Self-Employed Cal-West Advisory

Group. Bremer’s declaration explains how he reviewed the withheld documents and why those

documents were properly withheld under the FOIA. Carr’s declaration provides the details of her

unsuccessful search for plaintiff’s trust fund recovery penalty file. Deposing these witnesses may

enable plaintiff to gather additional facts relevant to the issue of whether the IRS complied with

the FOIA. See Pub. Citizen Health Res. Group v. Food & Drug Admin., 997 F. Supp. 56, 72

(D.D.C. 1998) (stating that scope of FOIA discovery includes “investigating the scope of the

agency’s search for responsive documents”), rev’d in part on other grounds, 185 F.3d 898 (D.C.

Cir. 1999). 

The Court agrees with plaintiff’s argument that the first and second causes of action are

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2

 Because the Court finds that plaintiff has satisfied its burden on both prongs of the Rule 56(f)

inquiry, the Court declines to reach any of the merits of defendant’s motion for summary judgment,

including the issue of whether the IRS was improperly named as a defendant. See Garrett v. City &

County of San Francisco, 818 F.2d 1515, 1519 (9th Cir. 1987) (citing cases for the proposition that

it would be error to grant summary judgment while opposing party seeks additional discovery). 

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“inextricably intertwined”. For example, the complaint alleges on information and belief that the

withheld documents would prove that the IRS authorized the Department of Justice to file the

March 2003 action even though the IRS lacked evidentiary support for the assessment of trust fund

recovery penalties. (Compl. ¶ 28.) Considering the interrelationship between the two causes of

action, the Court refuses to allow defendant to prevail on a motion for summary judgment on the

second cause of action, where the parties previously agreed to stay discovery because a dispositive

motion was pending as to the first cause of action. In this context, defendant’s motion for

summary judgment on the FOIA claim potentially represents a preemptive effort to preclude

plaintiff from obtaining all discovery relevant to the § 7433 claim, which is the real crux of

plaintiff’s case. FOIA-exempt documents “are not automatically privileged in civil discovery.” 

Kamakana v. City & County of Honolulu, 447 F.3d 1172, 1185 (9th Cir. 2006) (citing Friedman v.

Bache Halsey Stuart Shields, Inc., 738 F.2d 1336, 1344 (D.C. Cir. 1984)). For these reasons, the

Court finds that plaintiff has adequately shown how the sought discovery would preclude summary

judgment.

In light of the Court’s finding that plaintiff is entitled to conduct further discovery in this

case, the Court will deny the defendant’s motion for summary judgment without prejudice. As the

magistrate judge previously vacated the pretrial dates in this matter (including discovery cut-offs),

the Court will direct the parties to contact the magistrate judge following the issuance of this

Order.2 

CONCLUSION

Because plaintiff fails to state the particular statute or regulation that the IRS disregarded,

the Court GRANTS defendant’s motion for judgment on the pleadings with respect to the first

cause of action. Within twenty (20) days of the date that this Order is electronically docketed,

plaintiffs MAY FILE an amended complaint to cure the pleading defects in the first cause of

action. 

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Pursuant to FRCP 56(f), the Court DENIES WITHOUT PREJUDICE defendant’s

motion for summary judgment.

The parties SHALL JOINTLY CONTACT the chambers of Magistrate Judge Cathy A.

Bencivengo within three (3) Court days of the date that this Court’s Order is electronically

docketed, consistent with Magistrate Judge Bencivengo’s prior orders. (See Doc. Nos. 31, 34.) 

IT IS SO ORDERED.

DATED: March 13, 2008

Honorable Janis L. Sammartino

United States District Judge

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