Court Opinion

ID: 2660849
Source: CourtListenerOpinion
Date Created: 2014-04-03 05:16:38.154682+00
Date Added: 2024-06-11T12:18:10.037738
License: Public Domain

UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA

RYAN, LLC, et al.,
                      Plaintiffs,

                      v.
                                                    Civil Action No. 12-cv-565 (RLW)
JACOB LEW,
  U.S. Secretary of the Treasury, et al.,

                      Defendants.

                                    MEMORANDUM OPINION

       Plaintiffs Ryan, LLC, G. Brint Ryan, and Gerald Lee Ridgely (collectively, “Plaintiffs”)

bring this action against Jacob Lew, in his official capacity as the U.S. Secretary of the

Treasury, 1 and against Douglas H. Shulman, in his official capacity as the Commissioner of the

Internal Revenue Service (“IRS”) (collectively, the “Government”). Plaintiffs challenge certain

provisions of Title 31, Section 10 of the Code of Federal Regulations—commonly known as

“Circular 230”—that generally limit the use of contingent fee arrangements in connection with

the preparation and filing of refund claims with the IRS.       See 31 C.F.R. § 10.27.     More

specifically, Plaintiffs mount three distinct attacks against Circular 230: (1) Ryan, LLC and Mr.

Ryan argue that Circular 230 violates their rights under the Petition Clause of the First

Amendment (Count I); (2) Mr. Ryan argues that Circular 230 violates his Fifth Amendment Due

Process Rights (Count II); and (3) Mr. Ridgely brings suit under the Administrative Procedure

Act (“APA”), 5 U.S.C. §§ 701, et seq., arguing that the IRS exceeded its statutory authority in

promulgating Circular 230 (Count III). Plaintiffs seek a declaratory judgment that Circular 230’s

restrictions of contingent fee arrangements in the context of “ordinary refund claims” is
1
       Plaintiffs originally brought suit against Timothy Geithner, but upon his confirmation,
Secretary Lew was automatically substituted as the named defendant. FED. R. CIV. P. 25(d).
                                               1
unconstitutional and exceeds the scope of the IRS’s authorizing statute, and they seek a

permanent injunction barring the enforcement of Circular 230’s restrictions on the use of

contingent fee arrangements for “ordinary refund claims.”

       This matter is presently before the Court on the Government’s Motion to Dismiss Counts

I and II. (Dkt. No. 10). The parties previously appeared before the Court for a hearing on the

Government’s Motion on November 19, 2012, at which time the Court alerted the parties to its

concerns as to whether Ryan, LLC and Mr. Ryan possess standing to pursue their constitutional

claims. At the conclusion of the hearing, the parties sought leave to submit supplemental briefs

on the standing issue, which the parties have now done. (See Dkt. Nos. 21, 22, 23). Upon

careful consideration of the parties’ respective briefs and supplemental briefs, the presentation of

counsel during the hearing on November 19, 2012, and the entire record in this action, the Court

concludes, for the reasons set forth herein, that Mr. Ryan lacks standing to pursue his Due

Process Clause claim and that Count II will therefore be DISMISSED for lack of jurisdiction.

The Court also concludes that both Ryan, LLC’s and Mr. Ryan’s Petition Clause claims under

Count I will be DISMISSED pursuant to Rule 12(b)(6) for failure to state a claim. Accordingly,

the Government’s Motion to Dismiss Counts I and II is GRANTED IN PART and DENIED

AS MOOT IN PART.

                                        BACKGROUND

   A. Factual Summary

       Circular 230 prescribes rules governing the practice of attorneys, certified public

accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS. (Dkt. No. 1

(“Compl.”) at ¶ 34). Circular 230 was promulgated by the IRS under authority granted to it by

statute. (Id. ¶ 35 (citing 31 U.S.C. § 330)). Circular 230 is divided into five subparts that

                                                 2
establish: (i) rules governing the authority to practice before the IRS; (ii) duties and restrictions

relating to practice before the IRS; (iii) rules applicable to disciplinary proceedings; (iv) rules

applicable to disqualification of appraisers; and (v) general miscellaneous provisions. (Id. ¶ 36).

Simply stated, Circular 230 delineates who may practice before the IRS, the standards and

restrictions such persons must follow, and the sanctions imposed for violations of such standards

and restrictions. See 31 C.F.R. §§ 10.1–10.93.

       Beginning in 1994, Circular 230 restricted the use of contingent fee arrangements for

preparing original income tax returns; however, the regulations allowed the use of contingent fee

arrangements for the preparation and filing of amended returns and/or refund claims, so long as

the practitioner “reasonably anticipate[d] at the time the fee arrangement [was] entered into that

the [amended] return [or refund claim] will receive substantive review by the IRS.” (Compl. at ¶

38 (quoting Regulations Governing the Practice of Attorneys, Certified Public Accountants,

Enrolled Agents, and Enrolled Actuaries Before the Internal Revenue Service, 59 Fed. Reg.

31,523, 31,525 (June 20, 1994))). In promulgating these regulations, the IRS explained that

“Treasury continues to believe that a rule restricting contingent fees for preparing tax returns

supports voluntary compliance with the tax laws by discouraging return positions that exploit the

audit selection process.” (Id. (quoting 59 Fed. Reg. at 31,525)).

       In September 2007, however, the IRS promulgated a final rule that amended Circular

230’s regulations and expanded the limitations on the use of contingent fee arrangements. See

Regulations Governing Practice Before the Internal Revenue Service, 72 Fed. Reg. 54,540 (Sept.

26, 2007). In response to public comments, the IRS explained that “[t]he Treasury Department

and the IRS continue to believe that a rule restricting contingent fees for preparing tax returns

supports voluntary compliance with the Federal tax laws by discouraging return positions that

                                                 3
exploit the audit selection process.” (Compl. at ¶ 39 (quoting 71 Fed. Reg. 6,421, 6,423-24 (Feb.

8, 2006)). Circular 230 now provides that, in most circumstances, “a practitioner may not charge

a contingent fee for services rendered in connection with any matter before the [IRS].” 31

C.F.R. § 10.27(b)(1). However, Circular 230 does allow for some exceptions to this limitation,

“for services rendered in connection with the Service’s examination of, or challenge to: (i) [a]n

original tax return; or (ii) [a]n amended return or claim for refund or credit where the amended

return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written

notice of the examination of, or a written challenge to the original tax return.” Id. § 10.27(b)(2).

Additionally, a practitioner may properly charge a contingent fee “for services rendered in

connection with a claim for credit or refund filed solely in connection with the determination of

statutory interest or penalties assessed by the [IRS],” or “for services rendered in connection with

any judicial proceeding arising under the Internal Revenue Code.” Id. § 10.27(b)(3), (4).

       The term “contingent fee” is defined as “any fee that is based, in whole or in part, on

whether or not a position taken on a tax return or other filing avoids challenge by the [IRS] or is

sustained either by the [IRS] or in litigation,” and also includes “a fee that is based on a

percentage of the refund reported on a return, that is based on a percentage of the taxes saved or

that otherwise depends on the specific result attained.” Id. § 10.27(c)(1). The regulations define

“[m]atter before the Internal Revenue Service” as:

       [T]ax planning and advice, preparing or filing or assisting in preparing or filing
       returns or claims for refund or credit, and all matters connected with a
       presentation to the [IRS] or any of its officers or employees relating to a
       taxpayer’s rights, privileges, or liabilities under laws or regulations administered
       by the [IRS]. Such presentations include, but are not limited to, preparing and
       filing documents, corresponding and communicating with the [IRS], rendering
       written advice with respect to any entity, transaction, plan or arrangement, and
       representing a client at conferences, hearings, and meetings.

Id. § 10.27(c)(2).    As relevant here, Circular 230 proscribes the use of contingent fee

                                                 4
arrangements for what the Plaintiffs term “ordinary refund claims,” i.e., claims for refund filed

after taxpayers have filed their original tax return, but before the IRS initiates an audit of the

return(s).   (Compl. at ¶ 2). 2   It is precisely this restriction—Circular 230’s application to

“ordinary refund claims”—that Plaintiffs challenge herein.

        Ryan, LLC, a leading global tax services firm, alleges that “[a]n integral part” of its

business “has historically been the representation of clients on a contingent fee basis in the

preparing and filing of ‘Ordinary Refund Claims.’” (Id. ¶ 20). Ryan, LLC asserts that the

“ordinary refund claims” it has prepared and filed on behalf of its clients “typically have not

involved complex legal issues, or in many cases, any legal disputes at all. Instead, these refund

claims have usually been extremely fact intensive inquiries that required an enormous outlay of

time, energy, and resources.” (Id. ¶ 22). According to Plaintiffs, Ryan, LLC’s efforts in

“[c]ompiling, organizing, preparing, and analyzing the volumes of data necessary to establish the

validity of such claims results in substantial expenses being incurred upfront, in the preparation

of the claim.” (Id.). Given this, Ryan, LLC alleges that its “clients have preferred the use of

contingent fee arrangements when pursuing Ordinary Refund Claims.” (Id.). Ryan, LLC alleges

that it “has lost clients and substantial revenue due to the Circular 230 prohibition on the use of

contingent fee arrangement for services rendered in connection with the preparation and filing of

‘Ordinary Refund Claims.’” (Id. ¶¶ 8, 49-51). Through this suit, Ryan, LLC asserts that

Circular 230’s restrictions infringe upon the “First Amendment right to petition the Government

for a redress of grievances,” through the filing of “ordinary refund claims.” (Id. ¶¶ 1, 54-60).

2
        The Government takes issue with Plaintiffs’ use of the term “ordinary refund claim,” as
“not descriptive of the regulatory prohibition.” (See Dkt. No. 22 (“Defs.’ Supp. Opp’n”) at 1
n.1). The Court understands the Government’s argument, but, for purposes of this opinion, the
particular label used by Plaintiffs makes no meaningful difference.
                                                 5
       Plaintiff G. Brint Ryan (“Mr. Ryan”) is the founder and chairman of Ryan, LLC. For his

part, he asserts that, because of Circular 230’s prohibition on the use of contingent fee

arrangements, he “is unable to retain a practitioner on a contingent fee basis to prepare and file

an Ordinary Refund Claim on his behalf.” (Id. ¶ 24). Elsewhere in the Complaint, however, Mr.

Ryan avers that, while unable to obtain representation on a contingent fee basis, he has

nevertheless “filed an Ordinary Refund Claim since the effective date of the 2007 revisions to

Circular 230.” (Id. ¶ 25). Along with Ryan, LLC, Mr. Ryan alleges that Circular 230 violates his

rights under the Petition Clause of the First Amendment, and he also claims that Circular 230

violates his Fifth Amendment due process rights by depriving him of the ability “to obtain a

refund for an overpayment of tax.” (Id. ¶¶ 1, 9, 54-60, 61-66). 3

    B. Procedural History

       Plaintiffs filed their Complaint in this matter on April 11, 2012. (See generally Compl.).

On July 23, 2012, the Government filed its Motion to Dismiss Counts I and II, seeking the

dismissal of Plaintiffs’ constitutional claims under Federal Rule of Civil Procedure 12(b)(6) on

the grounds that they fail to state plausible claims under either the Petition Clause or the Due

Process Clause. (See Dkt. No. 10-1). The parties subsequently stipulated to a briefing schedule,

and the Court set a hearing on the Government’s Motion for November 19, 2012. (See Dkt. No.

11; Minute Entry, Aug. 1, 2012). In the course of preparing for that hearing, however, the Court

developed some concerns as to whether Ryan, LLC and/or Mr. Ryan had standing to pursue their

constitutional claims. The Court raised these concerns with the parties during the hearing on

November 19th, setting forth in detail its doubts about Plaintiffs’ ability to establish standing.

3
       Inasmuch as Mr. Ridgely’s claim under the APA (Count III) is not the subject of the
Government’s Motion, the Court, in the interest of judicial economy, foregoes a detailed
discussion of the allegations underpinning his claim.
                                                6
(See Dkt. No. 20 (Transcript)). At the conclusion of the hearing, the parties asked to submit

supplemental briefing, which the Court allowed. (Dkt. No. 19). The parties have since filed

their supplemental briefs on the issue of standing, and this matter is now ripe for decision. 4

                                            ANALYSIS

    A. Legal Standards Governing Article III Standing

       “Article III of the Constitution strictly limits the federal judicial power to resolving

‘Cases’ and ‘Controversies.’” Dominguez v. UAL Corp., 666 F.3d 1359, 1361 (D.C. Cir. 2012)

(quoting U.S. CONST. art. III, § 2). As the Supreme Court very recently reiterated, “no principle

is more fundamental to the judiciary’s proper role in our system of government than the

constitutional limitation of federal-court jurisdiction to actual cases or controversies.” Clapper v.

Amnesty Int’l USA, --- U.S. ---, 133 S. Ct. 1138, 1146 (2013) (quoting DaimlerChrysler Corp. v.

Cuno, 547 U.S. 332, 341 (2006)). Of course, standing is “an essential and unchanging part of the

case-or-controversy requirement of Article III.” Lujan v. Defenders of Wildlife, 504 U.S. 555,

560 (1992). Ensuring that a plaintiff has standing to sue is thus a necessary “predicate to any

exercise of [the Court’s] jurisdiction.” Fla. Audubon Soc’y v. Bentsen, 94 F.3d 658, 663 (D.C.

Cir. 1996) (en banc). “The question of standing involves both constitutional limitations on

federal court jurisdiction and prudential limitations on its exercise.” Bennett v. Spear, 520 U.S.

154, 162 (1997) (internal quotation omitted); see also Info. Handling Servs. v. Def. Automated

Printing Servs., 338 F.3d 1024, 1028 (D.C. Cir. 2003).

       First, to satisfy the “irreducible constitutional minimum of standing” under Article III, a

plaintiff must demonstrate: (1) that it has suffered an “injury in fact”—an actual or imminent

4
        Plaintiffs requested a hearing on the Government’s Motion, but the Court, in its
discretion, does not believe that the presentation of oral argument would be of assistance to the
Court, and finds this matter suitable for decision on the papers. See LCvR 7(f), 78.1.
Accordingly, the Court denies Plaintiffs’ Motion for an Oral Argument (Dkt. No. 24).
                                                  7
invasion of a legally-protected, concrete, and particularized interest; (2) a causal connection

between the alleged injury and the defendant’s conduct at issue; and (3) that it is “likely,” not

“speculative,” that the injury “will be redressed by a favorable decision.” Defenders of Wildlife,

504 U.S. at 560-61. “This triad . . . constitutes the core of Article III’s case-or-controversy

requirement, and the party invoking federal jurisdiction bears the burden of establishing its

existence.” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 103-04 (1998). In addition, a

party must be able to demonstrate prudential standing, by showing that its grievance “arguably

fall[s] within the zone of interests protected or regulated by the statutory provision or

constitutional guarantee invoked in the suit.” Nuclear Energy Inst., Inc. v. EPA, 373 F.3d 1251,

1266 (D.C. Cir. 2004) (quoting Bennett, 520 U.S. at 162)). In this Circuit, prudential standing,

like Article III standing, is jurisdictional. See Steffan v. Perry, 41 F.3d 677, 697 (D.C. Cir.

1994); Animal Legal Defense Fund, Inc. v. Espy, 29 F.3d 720, 723 n.2 (D.C. Cir. 1994).

       If either Article III or prudential standing “is lacking, then ‘the dispute is not a proper

case or controversy, [and] the courts have no business deciding it, or expounding the law in the

course of doing so.’” Dominguez, 666 F.2d at 1361 (quoting DaimlerChrysler Corp., 547 U.S. at

341) (alteration in original). It also bears emphasis that, “[w]hen there is doubt about a party’s

constitutional standing, the court must resolve the doubt, sua sponte if need be.” Lee’s Summit v.

Surface Transp. Bd., 231 F.3d 39, 41 (D.C. Cir. 2000); see also Catholic Social Serv. v. Shalala,

12 F.3d 1123, 1125 n.2 (D.C. Cir. 1994) (“Because standing is a jurisdictional doctrine, the

district court [is], of course, obliged to consider the issue sua sponte.”). Indeed, where the Court

has doubts about a party’s standing, it is reversible error to bypass standing and to proceed to the

                                                 8
merits of the case, even “where the merits question may be easily answered.” Dominguez, 666

F.3d at 1362. 5

       At the pleadings stage, “the standing inquiry requires careful judicial examination of a

complaint’s allegations to ascertain whether the particular plaintiff is entitled to an adjudication

of the particular claims asserted.” Allen v. Wright, 468 U.S. 737, 752 (1984). While the Court

“must assume that the plaintiff states a valid legal claim and must accept the factual allegations

in the complaint as true,” Holistic Candlers & Consumers Ass’n v. FDA, 664 F.3d 940, 943

(D.C. Cir. 2012), a plaintiff’s factual allegations “will bear closer scrutiny” in resolving issues of

standing, “than in resolving a 12(b)(6) motion for failure to state a claim.” Grand Lodge of the

Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13-14 (D.D.C. 2001) (quoting 5A

CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1350 (2d

ed. 1987)).

       Finally, the Court is mindful of admonitions from both the Supreme Court and our Court

of Appeals that the standing inquiry is “especially rigorous when reaching the merits of the

dispute would force [a court] to decide whether an action taken by one of the other two branches

of the Federal Government was unconstitutional,” as Plaintiffs’ claims would require here.

Clapper, 133 S. Ct. at 1147; see also Alaska Legislative Council v. Babbitt, 181 F.3d 1333, 1337

(D.C. Cir. 1999); Cheneweth v. Clinton, 181 F.3d 112, 115 (D.C. Cir. 1999).

       With these standards firmly in mind, the Court turns to consider whether Plaintiffs

possess standing to maintain their constitutional claims in this action.

5
       The Court expresses no view on the merits of the Plaintiffs’ claims. Instead, the Court
heeds its duty “not to decide the questions on the merits for or against the plaintiff” and
“assume[s] that on the merits the plaintiffs would be successful in their claims.” City of
Waukesha v. EPA, 320 F.3d 228, 235 (D.C. Cir. 2003) (citing Warth v. Seldin, 422 U.S. 490, 502
(1975)).
                                                  9
    B. Ryan, LLC Has Standing To Pursue Its Petition Clause Claim (Count I)

        Beginning with Plaintiffs’ claim under the Petition Clause of the First Amendment, the

Court first examines whether Ryan, LLC possesses standing to pursue this claim. As an initial

matter, there appears to be no legitimate dispute that Ryan, LLC satisfies the requirements of

constitutional standing under Article III. According to the allegations of the Complaint, it has

suffered the loss of “a significant number of clients and several million dollars in revenue” as a

result of Circular 230’s prohibition on the use of contingent fee arrangements for Ordinary

Refund Claims. (Compl. at ¶ 23). The nature of this claimed injury suffices to satisfy the first

prong of Article III standing. See, e.g., Lepelletier v. FDIC, 164 F.3d 37, 42-43 (D.C. Cir. 1999)

(“[T]he denial of a business opportunity satisfies the injury requirement.”). Moreover, Ryan,

LLC credibly alleges that its revenue and clientele losses are fairly traceable to Circular 230’s

prohibition on the use of contingency fee arrangements, and that its claimed injury is likely to be

redressed by a favorable decision from the Court. (Compl. at ¶¶ 23, 49-51). Thus, Ryan, LLC

meets the necessary requirements to establish Article III standing.

        However, the parties quarrel over whether Ryan, LLC satisfies the prudential standing

requirements to pursue its Petition Clause Claim. For its part, Ryan, LLC effectively concedes

that its particular injuries—which are economic in nature—do not fall within the zone of

interests protected by the First Amendment’s Petition Clause. Instead, Ryan, LLC seeks to

invoke third-party standing (sometimes referred to as jus tertii standing) on behalf of its clients.

(Dkt. No. 21 (“Pls.’ Supp. Mem.”) at 2 (“Ryan, LLC satisfies the . . . prudential standing

requirements to assert its Petition Clause claim on behalf of its clients and taxpayers.”)). On this

point, our Court of Appeals has recognized “three prudential considerations to be weighed when

determining whether an individual may assert the rights of others: (1) ‘the litigant must have

suffered an ‘injury in fact,’ . . . (2) ‘the litigant must have a close relation to the third party,’ and
                                                   10
(3) ‘there must exist some hindrance to the third party’s ability to protect his or her own

interests.’” Lepelletier, 164 F.3d at 43 (quoting Powers v. Ohio, 499 U.S. 400, 411 (1991)). The

Government does not challenge Ryan, LLC’s ability to satisfy the first of these elements, but

takes issue with the latter two, arguing that Ryan, LLC cannot establish a sufficiently close

relationship with its clients, and that there is no hindrance that precludes Ryan, LLC’s clients

from seeking to vindicate their own Petition Clause rights.

       The Court need not dwell long on the first of these arguments. As the D.C. Circuit has

explained, the “close relation” criterion of third-party standing is intended to ensure that there is

“an identity of interests between the parties such that the plaintiff will act as an effective

advocate of the third party’s interests.” Lepelletier, 164 F.3d at 44. This standard is met here.

Ryan, LLC is interested in setting aside Circular 230’s contingent fee prohibition so that it can

resume contingent compensation agreements with its clients and can benefit from the renewed

business opportunities and increased revenues that will result. According to Ryan, LLC, its

clients’ interest in upending Circular 230 is to reduce the initial outlay of cost in pursuing

“ordinary refund claims” by enabling them to “shar[e] the expenses associated with the

preparation and filing of these claims” through contingency fee payments. (Pls.’ Supp. Mem. at

18). While not identical, Ryan, LLC’s interests are certainly closely aligned with those of its

clients (and potential clients), and both seek the same result—the elimination of Circular 230’s

contingent fee restrictions so they can enter into “mutually advantageous” contingent fee

arrangements. See Lepelletier, 164 F.3d at 45 (explaining that “jus tertii standing does not

require a perfect match”).

       The Government’s second argument, however, requires a closer look. As a general rule,

“[a] plaintiff may assert the rights of a third party only when there is some hindrance to the third

                                                 11
party’s ability to protect his or her own interests.” Rumber v. District of Columbia, 595 F.3d

1298, 1301 (D.C. Cir. 2010); Am. Immigration Lawyers Ass’n v. Reno, 199 F.3d 1352, 1362

(D.C. Cir. 2000). Ryan, LLC does not even attempt to argue that any such impediment, or

“hindrance,” exists here. It makes no suggestion that its individual taxpayer clients—whose First

Amendment Petition Clause rights Ryan, LLC ostensibly seeks to vindicate—are somehow

precluded from pursuing these claims in their own right.

       Instead, Ryan, LLC contends that, because it asserts a First Amendment violation, “it is

not necessary for the Court to find that those third parties would be hindered from bringing this

action on their own behalf.” (Pls.’ Supp. Mem. at 15). In so arguing, Ryan, LLC correctly

points out that the Supreme Court has seen fit to relax the “hindrance” component of third-party

standing in the free speech context, such that “where the claim is that a statute is overly broad in

violation of the First Amendment, the Court has allowed a party to assert the rights of another

without regard to the ability of the other to assert his own claims.” Sec’y of State of Md. v.

Joseph H. Munson Co., Inc., 467 U.S. 947, 957 (1984). There, the Supreme Court reasoned:

       Even where a First Amendment challenge could be brought by one actually
       engaged in protected activity, there is a possibility that, rather than risk punishment
       for his conduct in challenging the statute, he will refrain from engaging further in
       the protected activity. Society as a whole then would be the loser. Thus, when
       there is a danger of chilling free speech, the concern that constitutional
       adjudication be avoided whenever possible may be outweighed by society’s
       interest in having the statute challenged. “Litigants, therefore, are permitted to
       challenge a statute not because their own rights of free expression are violated, but
       because of a judicial prediction or assumption that the statute’s very existence may
       cause others not before the court to refrain from constitutionally protected speech
       or expression.” Broadrick v. Oklahoma, 413 U.S. 601, 612 (1973).

Id. at 956-57; see also Kowalski v. Tesmer, 543 U.S. 125, 130 (2004) (“Within the context of the

First Amendment . . . the Court has enunciated other concerns that justify a lessening of

prudential limitations on standing.”). Ryan, LLC urges the Court to adopt this relaxed approach

in evaluating its Petition Clause claim. While unable to cite to any case in which this leniency
                                                12
was specifically applied to a First Amendment Petition Clause claim—rather than a claim under

the Speech Clause, see, e.g., Munson, 467 U.S. at 956-59; Reese Brothers, Inc. v. U.S. Postal

Service, 531 F. Supp. 2d 64, 69-70 (D.D.C. 2008)—Ryan, LLC insists that, “given the

fundamental and inseparable nature of the various First Amendment rights, the relaxed standing

requirements apply to claims involving all First Amendment rights.” (Dkt. No. 23 (“Pls.’ Supp.

Reply”) at 5).     The Government, on the other hand, argues that the doctrine should be

constrained to First Amendment cases involving “pure speech,” and should not extend to the

Plaintiffs’ challenge under the Petition Clause here, particularly given the lack of any allegation

that “taxpayers will not bring their own claims under the Petition Clause . . . [or] that the statue

[sic] has had a chilling effect on constitutionally protected speech.” (Defs.’ Supp. Opp’n at 15).

On balance, Ryan, LLC has the better of this argument.

       To begin with, the Supreme Court has described the right to petition as “intimately

connected” with the First Amendment’s other concomitant rights:

       [T]he rights to assemble peaceably and to petition for a redress of grievances are
       among the most precious of the liberties safeguarded by the Bill of Rights. These
       rights, moreover, are intimately connected, both in origin and in purpose, with the
       other First Amendment rights of free speech and free press. All these, though not
       identical, are inseparable.

United Mine Workers v. Ill. State Bar Ass’n, 389 U.S. 217, 222 (1967) (internal quotation and

citations omitted); see also McDonald v. Smith, 472 U.S. 479, 485 (1985) (“The Petition Clause .

. . was inspired by the same ideals of liberty and democracy that gave us the freedoms to speak,

publish, and assemble. These First Amendment rights are inseparable . . . .”). In this Court’s

view, therefore, it reasonably follows that the more forgiving approach to prudential standing

requirements developed in the Speech Clause context should logically extend to claims under the

Petition Clause.   Indeed, this result seems particularly appropriate given the Government’s

acknowledgement that “the right to petition and the right to free speech . . . are related and are
                                                13
generally subject to the same constitutional analysis.” (Dkt. No. 10-1 (“Defs.’ Mem.”) at 7

(citing Wayte v. United States, 470 U.S. 598, 610 n.11)). The Court also notes that at least one

leading constitutional treatise makes no distinction on this issue as between the various First

Amendment guarantees. 1 RONALD D. ROTUNDA & JOHN E. NOWAK, TREATISE                                ON

CONSTITUTIONAL LAW: SUBSTANCE AND PROCEDURE § 2.13(f)(iii)(2), at 368 (5th ed. 2012) (“In

the First Amendment area, prudential barriers are lower.”).

       Along with these general parallels, the Court finds the Plaintiffs’ allegations in this case

plausibly establish a danger of “chilled speech” sufficient to place this particular case within the

contours of Munson. Taking the Complaint’s allegations as true, as the Court must, Ryan, LLC

asserts that it has “lost clients and substantial revenue” due to Circular 230’s revisions, which

means that clients who may have formerly filed “ordinary refund claims” are no longer doing so,

given their inability to compensate Ryan, LLC on a contingent basis. Munson, 467 U.S. at 956-

57 (finding relaxation of the hindrance requirement appropriate where “the statute’s very

existence may cause others not before the court to refrain from constitutionally protected speech

or expression”). The fact that Ryan, LLC’s clients may not be exercising their right to pursue

refund claims, as Plaintiffs allege, at least raises the specter of chilled speech. Given all this, the

Court finds that Ryan, LLC possesses standing to pursue its Petition Clause claim on behalf of its

third-party taxpayer clients.

       Insofar as Ryan, LLC has standing to pursue its Petition Clause claim, the Court need not

(and does not) decide whether Mr. Ryan would independently have standing to pursue a Petition

Clause claim as well. It is well settled that, to proceed to the merits of a claim, the Court “need

only find one party with standing.” Americans for Safe Access v. DEA, 706 F.3d 438, 443 (D.C.

Cir. 2013); see also Comcast Corp. v. FCC, 579 F.3d 1, 6 (D.C. Cir. 2009) (“[I]f one party has

                                                  14
standing in an action, a court need not reach the issue of the standing of other parties when it

makes no difference to the merits of the case.”).

   C. Mr. Ryan Lacks Standing To Pursue His Due Process Claim (Count II)

       Turning to Count II of the Complaint, Mr. Ryan asserts that Circular 230’s prohibition on

the use of contingent fee compensation in connection with “ordinary refund claims” violates his

rights under the Due Process Clause of the Fifth Amendment, which guarantees that “[n]o person

shall . . . be deprived of life, liberty, or property, without due process of law.” U.S. CONST.

amend. V. Both the Supreme Court and our Circuit have made clear that “[t]he first inquiry in

every due process challenge is whether the plaintiff has been deprived of a protected interest in

‘liberty’ or ‘property.’” GE v. Jackson, 610 F.3d 110, 117 (D.C. Cir. 2010) (quoting Am. Mfrs.

Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 59 (1999)); Lepelletier, 164 F.3d at 45 (“When presented

with a due process challenge, a court must determine, first, whether there has been a deprivation

of a property interest, and, if so, what process is due.”) (internal citation omitted). Thus, to

ensure that Mr. Ryan meets Article III’s injury-in-fact prong as to this claim, the Court must

satisfy itself that the allegations of the Complaint plausibly establish that he was deprived of a

protected property interest under the Due Process Clause. On balance, the Court concludes that

Mr. Ryan fails to make such a showing.

       In reaching this conclusion, the Court begins with the allegations of the Complaint.

Plaintiffs allege that Circular 230 infringes on Mr. Ryan’s “due process right to obtain a refund

of taxes paid.” (Compl. at ¶ 1) (emphasis added). Elsewhere in the Complaint, Mr. Ryan

invokes his “statutory right to obtain a refund for an overpayment of tax pursuant to [Internal

Revenue Code] §§ 6402(a) and 6511(a).”          (Id. ¶ 63) (emphasis added).      Based on these

allegations, and Plaintiffs’ repeated adherence to this theory in their briefs, the Court construes

                                                15
Mr. Ryan’s claimed injury as the deprivation of his property right to file refund claims with the

IRS. (See Dkt. No. 13 (“Pls.’ Opp’n”) at 13 (describing the basis of Mr. Ryan’s due process

claim as the deprivation of his “protected property interest in filing refund claims”); Pls.’ Supp.

Mem. at 18 (identifying the applicable injury as an “impair[ment] of the statutory rights of

taxpayers, including Mr. Ryan, to file refund claims”); Dkt. No. 23 (“Pls.’ Supp. Reply”) at 9

(“Mr. Ryan has properly alleged a deprivation of a protected property interests in the statutory

right to file refund claims for the overpayment of taxes.”)). In this respect, the Court emphasizes

that Plaintiffs do not contend that Circular 230 categorically bars taxpayers from filing “ordinary

refund claims” altogether. Nor could they. Notwithstanding Circular 230’s revised regulations,

taxpayers still have the ability to file “ordinary refund claims” with the IRS—they can continue

to file such claims on their own, without practitioner representation, and they can even continue

to file such claims with the assistance of tax practitioners, so long as they are compensated on a

non-contingent basis. All that Circular 230 prohibits is a taxpayer’s ability to compensate a tax

practitioner for preparing or filing an “ordinary refund claim with “a fee that is based on a

percentage of the refund reported on a return, that is based on a percentage of the taxes saved or

that otherwise depends on the specific result attained.” 31 C.F.R. § 10.27(c)(1).

       Seemingly recognizing this, the constitutional deprivation Plaintiffs allege is more

nuanced. In essence, they assert that, because “ordinary refund claims” are complex and require

a substantial outlay of time and effort, taxpayers cannot effectively pursue refund claims on their

own; for all intents and purposes, Plaintiffs suggest, taxpayers need practitioner assistance to file

such claims. In turn, because some taxpayers may be unable to afford to pay a tax practitioner

through anything but a contingent fee arrangement, Plaintiffs contend that Circular 230’s

prohibition on contingent fee compensation precludes some taxpayers from filing refund claims

                                                 16
with the IRS altogether. (See Pls.’ Supp. Mem. at 17-18) (“[B]ecause of the complexities of the

tax laws and the cost-prohibitive nature of preparing and filing Ordinary Refund Claims, the use

of contingent fee arrangements . . . reflects, in plain, practical terms, a means for taxpayers, such

as Mr. Ryan, to pursue these often costly refund claims by sharing the expenses associated with

the preparation and filing of these claims.”).          Assuming without deciding that these

circumstances amount to a constitutional due process violation—i.e., that the right to file a

refund claim with the IRS is a protected property interest, and that Circular 230

unconstitutionally infringes upon that right—Mr. Ryan fails to allege an injury consistent with

this theory. Stated another way, despite the supposedly “complex” and “costly” nature of

“ordinary refund claims,” Mr. Ryan does not assert that his inability to retain a practitioner on a

contingent fee basis has deprived him of the right or ability to pursue such a claim. In fact, the

plain allegations of the Complaint confirm precisely the opposite—Mr. Ryan “has filed an

Ordinary Refund Claim since the effective date of the 2007 revisions to Circular 230.” (Compl.

at ¶ 25) (emphasis added).

       While the Court can perceive that some “taxpayers” could potentially fall victim to the

type of injury articulated by Plaintiffs, Mr. Ryan is not plainly one of them. This is because

Plaintiffs assert that Circular 230 infringes upon taxpayers’ due process right to file refund

claims, but Mr. Ryan simply fails to establish that he has been injured in this manner. At most,

he pleads that he has been “unable to retain a practitioner on a contingent fee basis to prepare and

file an Ordinary Refund Claim on his behalf.” (Compl. at ¶¶ 5, 52). However, the ability to hire

a practitioner on a contingent fee basis is not the protected property interest that Mr. Ryan seeks

to vindicate—indeed, Plaintiffs expressly disclaim any such approach. (Dkt. No. 17 (“Pls.’

Surreply”) at 1 (“Plaintiffs are not asserting a constitutional right to hire an attorney on a

                                                 17
contingent fee basis.”); Pls.’ Supp. Reply at 7 (“Mr. Ryan has never asserted an inability to hire a

practitioner as a basis for his constitutional claims.”)). Given all this, Mr. Ryan’s claimed injury,

when measured against Plaintiffs’ due process theory, is the type of “conjectural or hypothetical”

injury too speculative to satisfy Article III’s requirements. See, e.g., Dominguez, 666 F.3d at

1362-64; Rodearmel v. Clinton, 666 F. Supp. 2d 123, 131 (D.D.C. 2009) (three-judge court)

(dismissing due process claim alleging deprivation of continued employment because, although

plaintiff alleged intolerable working conditions that might eventually result in his forced

resignation, he remained an employee at the time of suit, and therefore his allegations

demonstrated “speculative” injury, at best, and not the “actual or imminent” injury necessary to

establish Article III standing).

        Seeking to avoid this outcome, Plaintiffs argue that the Court’s concern “is really a

question of whether the Circular 230 prohibition sufficiently impairs Mr. Ryan’s right to file

Ordinary Refund Claims” that “goes to the merits of Mr. Ryan’s Due Process Clause claim and .

. . should not be considered for purposes of determining standing.” (Pls.’ Supp. Mem. at 18).

But the Court is not passing on the merits of Mr. Ryan’s claim. Quite conversely, the Court

assumes, as stated, that Mr. Ryan would prevail under Plaintiffs’ theory on the merits—i.e., that

the right to file refund claims is protected under the Due Process Clause, and that Circular 230

unconstitutionally infringes on such right. (See Compl. at ¶¶ 61-66). Despite these assumptions,

Mr. Ryan’s claim runs aground because his allegations fail to establish that he has suffered any

cognizable injury consistent with this theory. He does not allege that Circular 230 has rendered

him unable to file or obtain a refund with the IRS. (Id. ¶ 63). In fact, he alleges precisely the

opposite—that he has remained able to file refund claims despite Circular 230’s restrictions on

contingent fee compensation. (Id. ¶ 25). Far from a simply a matter of degree or a question as to

                                                 18
whether Mr. Ryan’s rights were “sufficiently” impaired, as Plaintiffs seem to suggest, this

distinction goes to the very heart of the property interest that Mr. Ryan alleges was infringed.

       In sum, because Mr. Ryan fails to allege a sufficiently concrete and particularized injury

that comports with his constitutional due process theory, the Court finds that he lacks Article III

standing to pursue this claim. Accordingly, Count II of Plaintiffs’ Complaint is hereby dismissed

for want of jurisdiction.

   D. The Merits of Plaintiffs’ Petition Clause Claim

           1. Standard of Review on Motion to Dismiss

       The Government moves to dismiss Plaintiffs’ Petition Clause claim pursuant to Rule

12(b)(6). FED. R. CIV. P. 12(b)(6). “To survive a motion to dismiss [under Rule 12(b)(6)], a

complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007)). In considering a Rule 12(b)(6) motion, the Court must

construe a complaint “liberally in the plaintiffs’ favor,” and must “grant plaintiffs the benefit of

all inferences that can be derived from the facts alleged.” Stokes v. Cross, 327 F.3d 1210, 1215

(D.C. Cir. 2003). However, the Court need not accept inferences that are “unsupported by the

facts set out in the complaint,” nor “legal conclusions cast in the form of factual allegations.”

Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Finally, in evaluating a

Rule 12(b)(6) motion to dismiss, the Court properly considers “the facts alleged in the complaint,

documents attached thereto or incorporated therein, and matters of which it may take judicial

notice.” Stewart v. Nat’l Educ. Ass’n, 471 F.3d 169, 173 (D.C. Cir. 2006).

                                                  19
           2. Plaintiffs Fail To State A Claim Under The Petition Clause

       The First Amendment to the Constitution guarantees “the right of the people . . . to

petition the Government for a redress of grievances.” U.S. CONST. amend. I. While infrequently

litigated, the Supreme Court has recognized the right to petition as “one of ‘the most precious of

the liberties safeguarded by the Bill of Rights.’” BE&K Constr. Co. v. NLRB, 536 U.S. 516, 524

(2003) (quoting United Mine Workers, 389 U.S. at 222). Recently, the Supreme Court expressly

reaffirmed that “the right of access to courts for redress of wrongs is an aspect of the First

Amendment right to petition the government.” Borough of Duryea v. Guarnieri, --- U.S. ---, 131

S. Ct. 2488, 2494 (2011) (quoting Sure-Tan, Inc. v. NLRB, 467 U.S. 883, 896-97 (1984)).

       Through Count I of their Complaint, Plaintiffs allege that, in prohibiting the use of

contingent fee arrangements to prepare and file “ordinary refund claims,” Circular 230

unconstitutionally impinges on their First Amendment petition rights. (See Compl. at ¶¶ 1, 54-

60). In opposing the Government’s Motion, Plaintiffs insist that they have stated a viable claim

under the Petition Clause and contend that:

       [They] have sufficiently alleged that, given the technical complexities of the tax
       laws, the requirements imposed by the IRS on the content of refund claims and
       the enormous amount of time and effort necessary to prepare a proper refund
       claim, the prohibition on the use of contingent fee arrangements impairs and, in
       some cases, may extinguish, the ability of taxpayers to effectively petition the IRS
       for a refund of taxes that have been overpaid.

(Pls.’ Opp’n at 8). Ultimately, even accepting as true the well-pleaded allegations of Plaintiffs’

Complaint, the Court concludes that Plaintiffs fail to state a plausible claim for relief under the

First Amendment’s Petition Clause.

       In pressing for the dismissal of Plaintiffs’ claim, the Government first argues that the

Petition Clause does not protect “a taxpayer’s right to file an administrative claim for refund”

with the IRS. (Defs.’ Reply at 7). The Court finds this proposition dubious. Not only has the

                                                20
Supreme Court explicitly held that Petition Clause guarantees citizens the ability to seek relief

with courts, but it has also made clear that these protections extend to “other forums established

by the government for the resolution of legal disputes.” Borough of Duryea, 131 S. Ct. at 2494.

The Court has also explained that “[t]he same philosophy governs the approach of citizens or

groups of them to administrative agencies (which are both creatures of the legislature, and arms

of the executive) and to courts, the third branch of Government.” Cal. Motor Transport Co. v.

Trucking Unlimited, 404 U.S. 508, 510 (1972) (“Certainly the right to petition extends to all

departments of the Government. The right of access to the courts is indeed but one aspect of the

right of petition.”).   Insofar as the Internal Revenue Service is an administrative agency

established by the Government, the Court believes that the Petition Clause would protect

citizens’ rights to file claims with the IRS, as Plaintiffs suggest. On balance, however, the Court

need not directly pass on this issue because, even assuming that the right to file a refund claim

with the IRS does fall within the ambit of the Petition Clause’s protections, Plaintiffs fail to

allege any constitutionally cognizable violation or impingement of such a right.

       To be sure, “the protections afforded by the First Amendment . . . are not absolute.”

Virginia v. Black, 538 U.S. 343, 358 (2003); see also Real Estate Bar Ass’n for Mass., Inc. v.

Nat’l Real Estate Info. Servs., 608 F.3d 110, 124 n.8 (1st Cir. 2011) (“The First Amendment

protects an individual’s right to petition . . . but that right is not absolute.”); Mangold v. Analytic

Servs., Inc., 77 F.3d 1442, 1458 (4th Cir. 1996) (similar); Wright v. DeArmond, 977 F.2d 339,

347 (7th Cir. 1992) (similar); U.S. Postal Serv. v. Hustler Magazine, Inc., 630 F. Supp. 867, 872

(D.D.C. 1986) (“While the right to petition Government is among the most precious of the

liberties safeguarded by the Bill of Rights, we recognize that this right, like many rights, is not

absolute but can be subject to reasonable limitations.”). In the Government’s view, therefore,

                                                  21
Circular 230’s impact on taxpayers’ ability to file refund claims with the IRS, if any, falls well

within the permissible bounds of the Government’s ability to regulate potential First Amendment

conduct. Under the revised regulations of Circular 230, taxpayers remain free to file “ordinary

refund claims” with the IRS. (See Compl. at ¶¶ 23, 25, 47). Taxpayers remain free to retain a

tax practitioner to assist them in the preparation and filing of such claims. (See id.). And

taxpayers also remain free to compensate tax practitioners for such claims. The only limitation

that Circular 230’s revised regulations place on taxpayers is this: if taxpayers choose to file an

“ordinary refund claim,” and if taxpayers choose to retain a tax practitioner to assist them in the

preparation and filing of such a claim, then they cannot compensate the practitioner on a

contingency fee basis. The Court agrees that this minor limitation on proceedings before the IRS

does not run afoul of the Petition Clause.

       The Government compares the Plaintiffs’ claim in this case to an issue presented in

United States v. Harriss, 347 U.S. 612 (1954), which involved a challenge to the Federal

Regulation of Lobbying Act on First Amendment grounds. The Harriss Court held, in relevant

part, that a statute requiring lobbyists to register with Congress and to make specific disclosures

did not violate the plaintiff’s First Amendment petition rights; rather, those discrete regulations,

which simply allowed Congress to “know who is being hired, who is putting up the money, and

how much” so that it could “maintain the integrity of a basic governmental process,” were found

to be permissible under the First Amendment. Id. at 625. Relatedly, says the Government,

Circular 230 does not categorically prohibit taxpayers from pursuing claims with the IRS, even

with representation. It simply limits the compensation structure in connection with any such

representation, “to discourage tax return positions that exploit the audit selection process.”

(Defs.’ Mem. at 3; see also Compl. at ¶¶ 38-39). While certainly not on all fours with this case,

                                                22
the Court agrees that some reasonable parallels can be drawn from the Harriss decision. Both

cases involve discrete, limited restrictions on a party’s ability to petition the government, and in

both cases those restrictions were driven by the same essential objective: “to maintain the

integrity of a basic governmental process.” Harriss, 347 U.S. at 625.

       Plaintiffs, on the other hand, rely heavily on the Montana Supreme Court’s decision in

Montana Auto Ass’n v. Greely, 632 P.2d 300 (Mont. 1981). But that decision does not dictate a

different result. There, the Montana Supreme Court struck down as unconstitutional portions of

a state ballot initiative that amended Montana’s Lobbying Act. More specifically, the court—

through a single paragraph of analysis—voided provisions that completely prohibited the

compensation of lobbyists through contingent fee arrangements because the provisions did not

distinguish between contingent arrangements that were “properly motivated,” as against those

that were “improperly motivated.” Id. at 393. As the Government rightly points out, the

restrictions invalidated in Greely are plainly distinguishable from the challenged provisions of

Circular 230, which do not impose a blanket prohibition on contingent fee arrangements in

proceedings before the IRS. Rather, the applicable regulations permit the use of contingency

fees in proceedings where the Service “first take[s] an initial action such as challenging a

taxpayer position, commencing an examination, or making an assessment of penalties or

interest.” (Defs.’ Mem. at 2-3; see also Compl. at ¶ 40). Thus, Circular 230 prohibits contingent

compensation only in certain circumstances—as relevant here, in connection with “ordinary

refund claims.” Moreover, the Government adopted the revised regulations “to discourage tax

return positions that exploit the audit selection process,” (Defs.’ Mem. at 3), which reflects an

effort on the Government’s part to separate “properly motivated” contingent arrangements from

those that are “improperly motivated,” which was precisely the concern identified in Greely.

                                                23
Thus, the Court finds the Plaintiffs’ reliance on that decision unavailing, and to the extent its

holding is not distinguishable from the instant matter, the Court disagrees with its (cursory)

analysis for the reasons stated herein.

       Accordingly, because the Court finds that Plaintiffs fail to state a cognizable claim for

relief under the Petition Clause of the First Amendment, Count I of Plaintiffs’ Complaint will be

dismissed under Rule 12(b)(6).

                                          CONCLUSION

       For the foregoing reasons, the Court concludes that Mr. Ryan lacks Article III standing to

pursue his claim under the Due Process Claim and therefore DISMISSES Count II of Plaintiffs’

Complaint for lack of jurisdiction. In addition, the Court find that Plaintiffs fail to state a claim

under the Petition Clause and therefore DISMISSES Count I pursuant to Federal Rule 12(b)(6).

Accordingly, the Government’s Motion to Dismiss Counts I and II is GRANTED IN PART and

DENIED AS MOOT IN PART. Count III of Plaintiffs’ Complaint, however, brought by Mr.

Ridgely pursuant to the APA, shall proceed.            An appropriate Order accompanies this

Memorandum Opinion.

                                                                     Digitally signed by Judge Robert L.
                                                                     Wilkins
                                                                     DN: cn=Judge Robert L. Wilkins,
Date: March 29, 2013                                                 o=U.S. District Court, ou=Chambers
                                                                     of Honorable Robert L. Wilkins,
                                                                     email=RW@dc.uscourt.gov, c=US
                                                                     Date: 2013.03.29 18:53:18 -04'00'

                                                      ROBERT L. WILKINS
                                                      United States District Judge

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