Opinion ID: 3035474
Heading Depth: 1
Heading Rank: 3

Heading: Withholding of Employer Share of FICA Taxes:

Text: 2004–05 Umland also alleges that she experienced damages after being reclassified as an employee. Specifically, she alleges—and we must assume it to be true under our standard of review—that PLANCO withheld from her 2004–05 paychecks both the 7.65 percent employee FICA tax of 26 U.S.C. § 3101 and the 7.65 percent employer FICA tax of 26 U.S.C. § 3111.
Umland brought two breach-of-contract claims based on “implied terms” of her employment contract. The first is based 14 on FICA, 26 U.S.C. § 3111. The second is based on 34 Pa. Code § 9.1(13), which prohibits unauthorized deductions, but relates back to the alleged violation of FICA to allege that no law authorized the withholding of an additional 7.65 percent of Umland’s salary. To bring these statutes into play for her contract claims, Umland appears to rely on the following principle of contract interpretation: Laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of it, as fully as if they had been expressly referred to or incorporated in its terms. This principle embraces alike those laws which affect its construction and those which affect its enforcement or discharge. Norfolk & W. Ry. Co. v. Am. Train Dispatchers Ass’n, 499 U.S. 117, 130 (1991) (quoting Farmers & Merchs. Bank of Monroe v. Fed. Reserve Bank of Richmond, 262 U.S. 649, 660 (1923)). Umland contends that because she has alleged that PLANCO violated both § 3111 and § 9.1(13), she has sufficiently alleged that PLANCO breached her employment contract. An initial problem is that Umland does not cite any authority applying this broad canon of construction to allow a 15 state-law claim based on a violation of federal tax law. We decline to apply such a broad principle to this tax-withholding context, as doing so here would trump the standard inquiry whether a federal statute creates a private right of action. PLANCO contends, and we agree with respect to Umland’s breach-of-contract claims, that Umland’s complaint attempts to use state common law to circumvent the absence of a private right of action under FICA. The Supreme Court has specified four factors used to determine whether a federal statute creates a private right of action: (1) whether the statute was enacted for the benefit of the plaintiff; (2) indication of legislative intent to create a private remedy; (3) consistency with the purposes of the legislative scheme; and (4) whether the cause of action would traditionally come under state law. Cort v. Ash, 422 U.S. 66, 78 (1975). In subsequent private-right-of-action cases, the Supreme Court has clarified that the “ ‘central inquiry’ ” is “ ‘whether Congress intended to create, either expressly or by implication, a private cause of action.’ ” McDonald, 291 F.3d. at 723 (quoting Touche Ross & Co. v. Redington, 422 U.S. 560, 575 (1979)); see also Gonzaga Univ. v. Doe, 536 U.S. 273, 286 (2002) (focusing on congressional intent as evidenced by statutory text); Alexander v. Sandoval, 532 U.S. 275, 286–87 (2001) (same); cf. Thompson v. Thompson, 484 U.S. 174, 179–80 (1988) (focusing on congressional intent but looking more broadly to legislative history and allowing that private rights of action could be implied rather than explicit). 16 Our Court has not previously decided whether FICA creates a private right of action. But our sister Court of Appeals for the Eleventh Circuit has analyzed the question in detail. That Court stated in McDonald that FICA is a tax-raising statute rather than a benefit-conferring statute, resolving factor (1) against the plaintiff. 291 F.3d at 723. Under factor (2), the Court stated that “the legislative history is completely devoid” of any intention to create a private right of action under FICA. Id. at 724. Finally, in reasoning that echoes preemption analysis, it wrote in its analysis of factor (3) that a private right of action would undermine the IRS’s administrative procedures. Id. at 725. In addition, many district courts have held that FICA did not create a private right of action. See Powell v. Carey Int’l, Inc., 514 F. Supp. 2d. 1302, 1323–24 (S.D. Fla. 2007) (following McDonald in response to plaintiff’s claim apparently based solely on FICA); Paukstis v. Kenwood Golf & Country Club, Inc., 241 F. Supp. 2d 551, 560–61 (D. Md. 2003) (rejecting claim for employer’s failure to pay retirement and medicare taxes brought under FICA itself); White v. White Rose Food, 62 F. Supp. 2d. 878, 887–88 (E.D.N.Y. 1999) (rejecting claims brought under FICA and other federal statutes); Salazar v. Brown, 940 F. Supp. 160, 164–65 (W.D. Mich. 1996) (rejecting FICA claim); DiGiovanni v. City of Rochester, 680 F. Supp. 80, 82–83 (W.D.N.Y. 1988) (holding that no federal cause of action exists under withholding statutes and declining to exercise pendent jurisdiction over the plaintiff’s state-law claims). 17 We agree with the analysis of these courts that FICA does not create a private right of action. Moreover, if we were to read FICA’s provisions into every employment contract, we would contradict Congress’s decision not to include expressly a private right of action and our belief that Congress did not intend to imply a private right of action either. Because both breach-of-contract claims at root allege FICA violations, we affirm the District Court’s dismissal of Umland’s breach-ofcontract claims with respect to 2004–05 as well.
Umland claims that PLANCO unjustly enriched itself in 2004–05 by withholding an extra 7.65 percent of Umland’s salary, and the salaries of other class members, beyond the 7.65 percent they owed in employee FICA tax. According to the allegations in her complaint, Umland paid a total of 15.3 percent of her salary in FICA taxes—the same percentage she had been paying under SECA during 2000–03 when she was classified as an independent contractor. She alleges that PLANCO used the excess 7.65 percent to pay its employer FICA tax, reaping a benefit by avoiding the burden of that tax. PLANCO describes the alleged withholding of an extra 7.65 percent of Umland’s salary (above and beyond the 7.65 percent rightfully withheld for the employee FICA tax) as an overpayment of the employee FICA tax. We take this to mean that PLANCO views its actions as akin to a clerical mistake. 18 PLANCO’s characterization would place Umland’s claim squarely within the scope of 26 U.S.C. § 7422(a), which places restrictions on tax-refund lawsuits and preempts state-law claims: No suit or proceeding shall be maintained in 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 without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary [of the Treasury], according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof. Id. For example, the United States Court of Appeals for the Fifth Circuit has held that § 7422 preempts state-law claims against airlines that collected excise taxes on transportation under an expired statute that Congress unexpectedly declined to 19 renew. Sigmon v. Southwest Airlines Co., 110 F.3d 1200, 1204 (5th Cir. 1997).8 For her part, Umland calls the alleged withholding of an additional 7.65 percent an illegal assessment of the employer FICA tax on the wrong people. She cites Kaucky v. Southwest Airlines Co., 109 F.3d 349, 350–51 (7th Cir. 1991), which involved the same excise tax on transportation at issue in Sigmon and Brennan. In a dictum, the Court of Appeals for the Seventh Circuit assumed that a taxpayer suit could proceed under state law if the defendant who collected the allegedly invalid tax was either (1) a “con man” or (2) an authorized agent of the IRS who “turns dishonest” and acts in bad faith. Id. at 352–53. In other words, Umland argues that—unlike the defendant airlines in Sigmon, Brennan, and Kaucky—PLANCO lacked “colorable authority” to withhold an additional 7.65 8 Applying similar reasoning, the Court of Appeals for the Ninth Circuit has held that state-law claims like those at issue in Sigmon arose under § 7422 and were properly removed to federal court. See Brennan v. Southwest Airlines Co., 134 F.3d 1405, 1410 (9th Cir. 1998) (“The statute makes clear . . . that a suit to recover either a ‘tax’ or a ‘sum’ constitutes a suit for a tax refund.”). In that case, the Court did not analyze the issue as one of preemption. But, reaching what amounts to the same result as Sigmon, the Court dismissed the claims because the plaintiffs had not exhausted their administrative remedies, which § 7422 requires, and had sued the wrong party (i.e., the airlines rather than the Government, as § 7422 requires). Id. at 1412. 20 percent from her paycheck, id. at 352, because the employer FICA tax is an excise tax levied on employers, see 26 U.S.C. § 3111. But even under Umland’s characterization, we think her unjust enrichment claim amounts to an allegation that the amount of PLANCO’s employer FICA tax was “wrongfully collected” from her. As the Court in Brennan pointed out, “§ 7422 applies to any suit for any sum wrongfully collected in any manner.” 134 F.3d at 1410 n.7 (emphasis in original). As the Supreme Court has recently remarked with regard to § 7422: “Five ‘any’s’ in one sentence [there were two more than the three noted above] and it begins to seem that Congress meant the statute to have expansive reach.” See U.S. v. Clintwood Elkhorn Mining Co., ___ U.S. ___, 128 S. Ct. 1511, 1516 (2008) (holding that claims for a refund of invalid export tax brought under a statute other than § 7422 were barred).9 Instead of directing courts to characterize the nature of the tax collector—locating it on a spectrum from authorized agent acting in good faith, to once-authorized agent acting in bad faith, to “con man,” Kaucky, 109 F.3d at 352—we think § 7422 requires taxpayers to file claims with the IRS for tax refunds. 9 Although our case contrasts with Clintwood because the taxpayers there sought a refund from the Government, see id., PLANCO is still a “collector” of employment taxes, see Kaucky, 109 F.3d at 351(stating that “the firm corresponds to an employee of the [IRS]”). 21 We thus hold that § 7422 expressly preempts Umland’s unjust enrichment claim. This result protects the integrity of the administrative scheme for tax refunds that Congress has approved and that the IRS has implemented. See Brennan, 134 F.3d at 1411 (describing the policy rationales for this result).10 Umland argues that PLANCO received the benefit from the 7.65 percent wrongfully collected for her, and thus any repayment must come from PLANCO, not the Government. But the sum of money at issue is a tax, i.e., the employer FICA tax that PLANCO owed to the Government. Umland alleges that the amount withheld from her paycheck was excessive, and that the 7.65 percent at issue was wrongfully collected from her. These allegations track the language of § 7422. That statute required Umland to seek a refund from the IRS, which would in turn seek to collect the employer FICA tax due from PLANCO. Moreover, even if we did not hold that the language of § 7422 expressly preempted Umland’s claim, the broad sweep of 10 Umland points out Mikulski v. Centerior Energy Corp., 501 F.3d 555, 574 (6th Cir. 2007) (en banc) (holding that the District Court lacked jurisdiction over shareholders’ claims for overreporting of dividends), for the propositions that she was not required to exhaust her administrative remedies before filing suit and that § 7422 does not preempt her claim. We distinguish Mikulski from our case because, unlike PLANCO, the employer “did not collect or withhold any taxes” and “was not acting as a collection agent for or on behalf of the IRS.” Id. at 565. 22 § 7422—especially as described by the Supreme Court, see Clintwood, 128 S. Ct. at 1516—suggests that Congress intended the IRS to occupy the field of tax refunds, preempting claims such as Umland’s. Finally, dismissal for failure to state a claim is appropriate in this case because Umland’s complaint has not satisfied our pleading requirements in the wake of Twombly. Because she paid 15.3 percent of her salary before and after reclassification, becoming an employee left her with the same after-tax income as before (assuming her salary did not change on January 1, 2004, which she does not allege it did).11 For Umland’s claim to amount to unjust enrichment, she relies implicitly on the allegation that her reclassification as an employee should have resulted in an increase of her salary, after taxes, of 7.65 percent. Yet she does not allege any facts that reflect the contours of the new agreement between her and PLANCO that began in January 2004 when she was reclassified as an employee. Specifically, she does not explain whether the new agreement was meant to increase her after-tax income. In addition, Umland’s complaint does not explicitly allege that her paychecks reflected two separate amounts 11 During 2000–03, Umland was entitled to deduct one-half the SECA tax. See 26 U.S.C. § 1402(a)(12). For simplicitly, our discussion in this paragraph does not adjust for this complication. 23 withheld—one corresponding to the employee FICA tax, and another to the employer FICA tax. The complaint states only that PLANCO required Umland “to pay PLANCO’s employer’s share of the FICA tax.” Complaint ¶ 92. Yet the success of her unjust enrichment claim depends in part on her avoiding PLANCO’s characterization of the FICA taxes withheld from her paychecks as akin to an overpayment, i.e., a single sum paid in excess of what she owed. Her complaint leaves a reader to guess as to how PLANCO effected the additional 7.65 percent of withholding and how that action was reflected on her paychecks. In this context, her complaint needs to allege more facts “to raise a right to relief above the speculative level.” Phillips, 515 F.3d at 234 (quoting Twombly, 127 S. Ct. at 1965). Umland filed her complaint before the Supreme Court decided Twombly. Ordinarily, we would grant her leave to amend on this issue. Because we hold that § 7422 preempts Umland’s unjust enrichment claim, remand here is unnecessary.