Court Opinion

ID: 7864163
Source: CourtListenerOpinion
Date Created: 2022-09-08 18:23:17.879761+00
Date Added: 2024-06-11T16:29:05.610246
License: Public Domain

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.
I
This appeal is not a refund case. But it is about refunds. It has long been understood that there is a part-legal, part-equitable right to reclaim what the government has wrongfully taken away. Cf. Stone v. White, 301 U.S. 532, 534, 57 S.Ct. 851, 81 L.Ed. 1265 (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 en*464tertained indebitatus assumpsit suits against the collectors whom the taxpayers paid. See City of Phila. v. The Collector, 72 U.S. (5 Wall.) 720, 732-83, 18 L.Ed. 614 (1866) (“[The] [appropriate 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, 53 S.Ct. 620, 77 L.Ed. 1265 (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, 11 L.Ed. 576 (1845); see also Bull v. United States, 295 U.S. 247, 260, 55 S.Ct. 695, 79 L.Ed. 1421 (1935) (“In a proceeding for the collection of estate tax, the United States through a palpable mistake took more than it 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, 11 L.Ed. 576 (1845), interpreted a newly revised statute as preeluding 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 ruling in [Cary ] and made Judge Story’s opinion the law of the land.”).
As the Service has made amply clear, there are “off-label” 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 *465some 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 fulfill their obligations in order to seek judicial review.” (citation omitted)).2
What a racket. To quote Justice Story, “[wjhere 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, 124 S.Ct. 2373, 159 L.Ed.2d 137 (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 634 (“A court’s authority to remedy either type of error depends entirely on the underlying statutory obligation of the 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, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (“But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in charac*466ter.”); see also id. (noting “the threshold number of employees for application of Title VII is an element of a plaintiffs 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, 113 S.Ct. 1770, 123 L.Ed.2d 508 (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, 18 L.Ed. 614 (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, 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 634. 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 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 plaintiffs 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 *467it 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 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, 108 S.Ct. 2541, 101 L.Ed.2d 490 (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 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 *468than 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.
Ill
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 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.

. As we noted in Cohen I, Form 843 facially does not allow for an excise-tax refund claim. *465See 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.”).

. 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.