Murphy v. United States

Opinion

USCA1 Opinion

United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 94-1070

                                   JOHN F. MURPHY,

                                Plaintiff, Appellant,

                                          v.

                              UNITED STATES OF AMERICA,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Edward F. Harrington, U.S. District Judge]
                                               ___________________

                                 ____________________

                                        Before

                                  Cyr, Circuit Judge,
                                       _____________
                            Bownes, Senior Circuit Judge,
                                    ____________________
                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            Stephen  J.  Lyons with  whom Klieman,  Lyons, Schindler,  Gross &
            __________________            ____________________________________
        Pabian was on brief for appellant.
        ______
            Kenneth W.  Rosenberg, Attorney, Tax  Division, with  whom Loretta
            _____________________                                      _______
        C. Argrett, Assistant  Attorney General, Gary R. Allen  and Kenneth L.
        __________                               _____________      __________
        Greene, Attorneys, Tax  Division, Department of Justice  and Donald K.
        ______                                                       _________
        Stern, United States Attorney, were on brief for appellee.
        _____

____________________

                                   January 25, 1995
                                 ____________________



STAHL,  Circuit Judge.  This appeal arises from the
                      STAHL,  Circuit Judge.
                              _____________

            dismissal  of  a  suit  brought by  plaintiff-appellant  John

            Murphy for a tax refund  and damages stemming from an alleged

            illegal or erroneous  tax collection.  Because  we agree with

            the  district court  that  Murphy has  failed to  establish a

            waiver of sovereign immunity, we affirm.

                                          I.
                                          I.
                                          __

                                      Background
                                      Background
                                      __________

                      Prior to 1972,  Murphy formed Capeway  Construction

            Company  ("Capeway") as a partnership with Edward Laffey.  In

            1972, Capeway failed  to submit payroll taxes  to the federal

            government for  the quarters ending on June  30 and September

            30 of that year.  At the end of 1972, Capeway  terminated its

            business,  leaving an  outstanding payroll  tax liability  of

            $9,442.13.  Capeway's sole remaining asset at that time was a

            parcel of real estate located in Easton, Massachusetts, which

            Capeway had acquired  in 1971 for approximately  $5,000 ("the

            Property").    The Capeway  Property was  subject to  a first

            mortgage in favor of Wingate and Louise Chadbourne.

                      In  January  1974,  the  Internal  Revenue  Service

            ("IRS") assessed  Capeway $13,994.09  for the  unpaid payroll

            tax  liability.    Because  Capeway  failed  to  satisfy  the

            obligation,  the IRS  looked  to Murphy  and  Laffey who,  as

            partners, were  individually  liable for  the tax  liability.

            See 26 U.S.C.   6671(b). 
            ___

-2-
                                          2



In April 1974,  the IRS served the partners  with a

            notice  of seizure of the Property.   Prior to service of the

            notice, two  IRS officers had advised Murphy  that the agency

            intended to sell  the Property and apply the  proceeds to the

            outstanding tax liability.  In  August 1974, the IRS filed an

            action  against Murphy and  Laffey in federal  district court

            seeking judgment in the amount of the  payroll tax liability.

            On July 25, 1977, the district court entered judgment against

            Murphy and Laffey  in the amount  of $19,711.221 and  ordered

            the foreclosure and sale of the Property at public auction by

            the U.S. Marshal.  The order specified  that a minimum bid of

            $4,000 would be  required at the auction.   The order further

            stated that, after paying the costs of the sale, the proceeds

            were to be applied first to satisfy the  outstanding mortgage

            on the Property, then to cover the costs of the United States

            in the action, and finally to the outstanding judgment.2

                      In  1977,  the  U.S.  Marshal's  office   made  two

            unsuccessful  attempts  to  sell the  Property.    No further

            effort to sell  the Property was ever undertaken.3   Over the

____________________

            1.  This  amount  purported  to  account  for  $13,994.09  in
            outstanding  taxes,  penalties,  and  interest; $6,020.53  in
            statutory additions; and $335.24 for the costs of the action.

            2.  The order, which  Murphy attached to the  complaint, also
            stated   that,  if  any   surplus  remained,  it   should  be
            distributed "pursuant to a further Order of the Court."

            3.  Subsequently, Edward  Laffey was released  from liability
            due to his inability to pay.

                                         -3-
                                          3



course of the next eight years, the IRS never notified Murphy

            that  the Property  had not  been sold,  and Murphy  does not

            allege that  he ever  inquired as to  the disposition  of the

            Property.  The record does  not disclose what happened to the

            local tax bills on the property during the intervening years.

            We assume  that the taxes  were not paid, for  in 1985, after

            the IRS  released its  federal tax lien,  the Town  of Easton

            foreclosed  on  the  Property  pursuant  to  a  final  decree

            obtained  in  Massachusetts state  court  against  Murphy and

            Laffey for their failure to  pay the local real estate taxes.

            The  IRS did  not  notify  Murphy that  it  had released  its

            federal tax lien.

                      In  December 1989, the  IRS resumed its  efforts to

            collect the unpaid payroll taxes by issuing a final notice of

            tax due to  Murphy for the  sum of $43,468.98.   On July  16,

            1990, Murphy  received a  second final  notice, which  stated

            that the sum due was $19,311.97.  On August  20, 1990, Murphy

            made a  payment to the IRS in the amount of $19,351.74, which

            purported  to satisfy in  full his obligation  as responsible

            party for Capeway's outstanding payroll tax liability.4  

                      On  September  5,  1990,   Murphy  filed  a  refund

            application with  the IRS, claiming  that the seizure  of the

                                
            ____________________

            4.  Though it is not entirely clear from the record, Murphy's
            counsel at oral argument stated that both parties agreed that
            this  payment did in  fact fully satisfy  Murphy's obligation
            for the  1972 payroll  taxes.   Government's counsel  did not
            dispute this statement.

                                         -4-
                                          4



Property and its  ordered sale should have  rendered proceeds

            adequate to satisfy his tax liability.  On March 5, 1992, the

            IRS disallowed  his application.    On July  1, 1992,  Murphy

            filed a second  application for refund on which  the IRS took

            no action.  On March 9,  1993, Murphy filed this suit against

            the United States  seeking a refund and other relief pursuant

            to 28 U.S.C.   1346(a)(1) and 26 U.S.C.    7430 and 7433.  In

            his  Complaint,  Murphy  alleged   that  the  government  had

            exercised  "dominion and control"  over the Property  and had

            "breached its obligation  to liquidate and/or dispose  of the

            property  in  a  reasonable  manner."    The  district  court

            dismissed the suit on motion of the United States for lack of

            subject matter jurisdiction.  This appeal followed.

                                         II.
                                         II.
                                         ___

                                      Discussion
                                      Discussion
                                      __________

                      Murphy contends that  the district  court erred  in

            dismissing  his suit for lack of subject matter jurisdiction.

            He  claims that  jurisdiction  obtained  under  28  U.S.C.   

            1346(a)(1)  for a refund  of erroneously collected  taxes and

            under 26 U.S.C.    7433 for  damages.  We  first outline  the

            doctrine  of sovereign immunity and the requisite standard of

            review, and then proceed to discuss each argument in turn.

                      It  is  well  settled that  the  United  States, as

            sovereign, may not be sued without its consent.  E.g., United
                                                             ____  ______

            States v. Dalm, 494 U.S.  596, 608 (1990).  Jurisdiction must
            ______    ____

-5-
                                          5



be  found in an  express Congressional waiver  of immunity or

            consent to be sued.   See, e.g., United States v. Mottaz, 476
                                  ___  ____  _____________    ______

            U.S.  834, 841 (1986);  Sibley v. Ball, 924  F.2d 25, 28 (1st
                                    ______    ____

            Cir.  1991).  In general, statutes waiving sovereign immunity

            should  be strictly construed in favor  of the United States.

            See United  States v.  Michel, 282  U.S. 656, 659-60  (1931);
            ___ ______________     ______

            Gonsalves  v. IRS,  975  F.2d  13, 15  (1st  Cir. 1992)  (per
            _________     ___

            curiam); Schon v. United States,  759 F.2d 614, 617 (7th Cir.
                     _____    _____________

            1985).  See also Charles A. Wright et al. 14 Federal Practice
                    ___ ____                             ________________

            and Procedure    3654 at 194-95 (2d  ed. 1985).   "Courts may
            _____________

            not `enlarge . .  . beyond what the language [of  the statute

            creating the  waiver] requires.'"  Gonsalves, 975  F.2d at 16
                                               _________

            (alterations  in original)  (quoting Eastern  Transp.  Co. v.
                                                 _____________________

            United States, 272 U.S. 675, 686 (1927)).
            _____________

                      We  review de novo a district court's dismissal for
                                 __ ____

            lack of  subject  matter jurisdiction  under Fed  R. Civ.  P.

            12(b)(1).  Negron-Gaztambide v. Hernandez-Torres, 35 F.3d 25,
                       _________________    ________________

            27 (1st Cir.  1994), petition  for cert.  filed, 63  U.S.L.W.
                                 ________  ___ _____  _____

            3477 (December 8, 1994) (No. 94-1019).  Our review is similar

            to that  accorded a  dismissal for failure  to state  a claim

            pursuant to Fed. R. Civ. P. 12(b)(6).  See Scheuer v. Rhodes,
                                                   ___ _______    ______

            416 U.S. 232,  236 (1974); Negron-Gaztambide, 35  F.3d at 27.
                                       _________________

            In  reviewing  the  dismissal,  we   construe  the  Complaint

            liberally and treat all well-pleaded facts as true, according

            the plaintiff the benefit of all reasonable inferences.  See,
                                                                     ___

-6-
                                          6



e.g., K.W. Thompson Tool Co.  v. United States, 836 F.2d 721,
            ____  ______________________     _____________

            726  (1st Cir.  1988).   A plaintiff,  however, may  not rest

            merely  on  "unsupported  conclusions  or interpretations  of

            law."  Washington  Legal Found. v. Massachusetts  Bar Found.,
                   ________________________    _________________________

            993  F.2d   962,  971   (1st  Cir.   1993).     "[S]ubjective

            characterizations  or  conclusory descriptions  of  a general

            scenario  which could be  dominated by unpleaded  facts" will
                            _____

            not defeat a motion to dismiss.  Coyne v. City of Somerville,
                                             _____    __________________

            972  F.2d 440,  444  (1st  Cir.  1992)  (internal  quotations

            omitted).  Finally,  we conduct our review "mindful  that the

            party  invoking the jurisdiction  of a federal  court carries

            the burden of  proving its existence."  Taber  Partners, I v.
                                                    __________________

            Merit  Builders, Inc.,  987  F.2d 57,  60  (1st Cir.),  cert.
            _____________________                                   _____

            denied, 114 S. Ct. 82 (1993).
            ______

            A.  The 28 U.S.C.   1346(a)(1) Claim.
            _____________________________________

                      Murphy first contends that the district court erred

            because jurisdiction lies under 28 U.S.C.   1346(a)(1), which

            waives  sovereign immunity  for  tax-refund suits.5    Murphy

                                
            ____________________

            5.  28 U.S.C.   1346 provides in relevant part:

                      (a)  The   district  courts   shall  have
                      original  jurisdiction,  concurrent  with
                      the  United   States  Court   of  Federal
                      Claims, of:

                           (1)  Any  civil action  against  the
                      United  States for  the  recovery of  any
                      internal-revenue tax alleged to have been
                      erroneously  or  illegally   assessed  or
                      collected, or any penalty claimed to have
                      been collected  without authority  or any

                                         -7-
                                          7



does not dispute  his obligation for the  outstanding payroll

            taxes or the amount of  that obligation.  Neither does Murphy

            contend that  the government obtained anything of  value as a

            result of  its dealings with  the Property.   Essentially, he

            argues that, by virtue of  the notice of seizure, the ensuing

            court order of foreclosure and the failure of the IRS to keep

            Murphy  informed, the  IRS took  effective  ownership of  the

            Property without according  him proper credit for  its value.

            In other words,  the actions of the government  amounted to a

            de facto (and erroneous) collection of the Property entitling

            Murphy to a refund.  We disagree.

                      Assuming    arguendo     that,    under     certain
                                  ________

            circumstances,  the conduct  of  the IRS  with  respect to  a

            seizure of property could constitute a de facto collection of

            owed  taxes, Murphy  does  not  allege  facts  sufficient  to

            support such  a  claim.   First  of all,  Murphy's  Complaint

            asserts  only that  the  IRS  issued  a  notice  of  seizure,

            subsequently  obtained  an  order  of  foreclosure  from  the

            district  court, and  failed to  keep  Murphy informed.   The

            Supreme Court,  however, has held  that the IRS's  seizure of

            property  does not  effect a transfer  of ownership.   United
                                                                   ______

            States v.  Whiting Pools, Inc.,  462 U.S. 198,  209-11 (1983)
            ______     ___________________

            (bankruptcy  action).  "Ownership of the [seized] property is

                                
            ____________________

                      sum alleged  to have been excessive or in
                      any manner wrongfully collected under the
                      internal-revenue laws.

                                         -8-
                                          8



transferred only  when the  property is sold  to a  bona fide

            purchaser at a tax sale."  Id. at 211.  Therefore, prior to a
                                       ___

            successful  auction, the ownership  of the  Property remained

            with Capeway.

                      Moreover, Murphy's assertion that the IRS failed to

            notify  him that the auctions  were unsuccessful can give him

            no  comfort.  The  district court's order  directing the U.S.

            Marshal's  office to sell the Property explicitly stated that

            a  minimum bid  of $4,000  was  required.   This clearly  put

            Murphy  on notice of the possibility that the ordered auction

            might not be successful. 

                      Finally, though Murphy's Complaint  states that the

            IRS  exercised  "dominion  and  control"  over  the  Property

            subsequent  to  the  two unsuccessful  auction  attempts,  it

            alleges  no facts  in support  of  the conclusory  statement.

            Murphy has  not alleged  conduct analogous  to taking  title,

            insuring  and  renting  the property,  see  United  States v.
                                                   ___  ______________

            Pittman, 449 F.2d 623, 627  (7th Cir. 1971), or negotiating a
            _______

            payment   agreement   directly   with  debtors   on   account

            receivables, see  Barlow's, Inc.  v. United  States, 36  B.R.
                         ___  ______________     ______________

            826,  829 (Bankr.  E.D. Va.),  aff'd, 53  B.R. 986  (E.D. Va.
                                           _____

            1984),  aff'd,  767  F.2d  1098 (4th  Cir.  1985).6    Though
                    _____

                                
            ____________________

            6.  In contrasting  Murphy's  allegations  to  the  facts  of
            Pittman and Barlow's,  we do not hold that  the conduct found
            _______     ________
            in those cases  would necessarily support jurisdiction  for a
            refund suit under  28 U.S.C.   1346(a)(1).  We cite them only
            to illustrate the point that Murphy has alleged no facts that

                                         -9-
                                          9



essentially  asserting  that  the  conduct  of  the  IRS  was

            sufficient to  cause him  to believe that  the IRS  had taken

            effective ownership of  the Property, Murphy pleads  no facts

            to illustrate what  that conduct was.   Murphy's claim cannot

            rest  solely on the  unsubstantiated conclusion that  the IRS

            exercised "dominion and control."

                      Therefore,  because  Murphy's Complaint  cannot  be

            construed  as  asserting  a claim  for  erroneous  or illegal

            collection  of  taxes  (as  the  IRS did  not  "collect"  the

            Property), Murphy's claim  cannot be considered a  tax refund

            suit.  Accordingly, no jurisdiction  exists under 28 U.S.C.  

            1346(a)(1).  See  Cleveland Chair Co.  v. United States,  526
                         ___  ___________________     _____________

            F.2d 497, 498-99  (6th Cir. 1975) (no  jurisdiction in refund

            suit  where  dispute  centers  on  non-action  of  a  federal

            official   in  his  capacity  as   a  custodian  and  not  on

            overpayment of  taxes);  Film Truck  Serv. v.  Nixon, 216  F.
                                     _________________     _____

            Supp.  77, 78  (E.D. Mich.  1963) (no jurisdiction  in refund

            suit  where Complaint alleges government failed to dispose of

            seized property in most productive way possible).

            B.  The 26 U.S.C.   7433 Claim.
            _______________________________

____________________

            support  his claim  that  the  IRS  exercised  "dominion  and
            control"  over  the  Property.   Furthermore,  the  cases are
            distinguishable in that  neither arose as a refund  suit by a
            taxpayer.  See Pittman, 449  F.2d at 624 (action to foreclose
                       ___ _______
            federal tax liens brought by the United States) and Barlow's,
                                                            ___ ________
            36 B.R.  at 826  (motion in bankruptcy  action to  reduce tax
            lien subsequent to the IRS's filing of a proof of claim). 

                                         -10-
                                          10



Murphy's claim for relief under 26 U.S.C.   7433 is

            equally  unavailing.7   Congress  enacted     7433  "to  give

            taxpayers `a specific  right to bring  an action against  the

            Government for damages sustained due to unreasonable  actions

            taken  by an  IRS  employee.'"   Gonsalves,  975  F.2d at  15
                                             _________

            (quoting H.R. Conf. Rep. No.  1104, 100th Cong., 2d Sess. 228

            (1988)).  Congress provided, however, that the statute should

            apply to actions occurring after the date of enactment, which

            was November 10,  1988.  Id.  at 17-18.   Because all of  the
                                     ___

            conduct  of which Murphy complains (i.e., seizure and failure

            to  sell the  Property,  failure to  notify  Murphy that  the

            auctions were unsuccessful,  and release of tax  lien without

            notice to Murphy) occurred well before the date of enactment,

            26  U.S.C.   7433 does not  provide jurisdiction for Murphy's

            claims.

                                         III.
                                         III.
                                         ____

____________________

            7.  26 U.S.C.   7433 provides in relevant part:

                           (a) In  general - If,  in connection
                               In  general
                      with any  collection of Federal  Tax with
                      respect  to  a taxpayer,  any  officer or
                      employee of the  Internal Revenue Service
                      recklessly  or  intentionally  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.
                      Except as provided  in section 7432, such
                      civil  action  shall   be  the  exclusive
                      remedy for  recovering damages  resulting
                      from such actions. 

                                         -11-
                                          11



Conclusion
                                      Conclusion
                                      __________

                      For  the foregoing  reasons,  the district  court's

            dismissal is affirmed.  Costs to appellees.

-12-
                                          12