U.S. Court of Appeals for the

D.C. Circuit Opinions

 



 

 

 

 

The U.S. Court of Appeals for the D.C. Circuit issued Ryskamp v. Commissioner, No. 14-1042 (D.C. Cir. August 14, 2015) affirming that the United States Tax Court  has jurisdiction to review the IRS’ decision to deny a taxpayer his or her right to a Collection Due Process (“CDP”) hearing.  The IRS alleged that since Mr. Ryskamp’s arguments were frivolous, he did not have the right to a CDP hearing prior to IRS collection activities. The taxpayer had been issued a form letter denying him the CDP hearing, with no specific reasons for the rejection.  The IRS also alleged that the Tax Court does not have jurisdiction to review the IRS’ finding. The D.C. Circuit held:  “Judicial review of an IRS determination that a request for a Collection Due Process hearing is frivolous may be the only way to ensure a taxpayer is not erroneously denied the benefits of the Code’s pre-levy review process.”   A CDP Hearing was held after remand from the Tax Court, and the Collections Officer specifically concluded that all of the taxpayer’s arguments were frivolous.  The Tax Court agreed with the IRS’ findings on the frivolous arguments, but agreed with the taxpayer that the court does have jurisdiction to consider the issues prior to levy.  The appellate court affirmed all findings of the Tax Court.

 

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In a published opinion entered on June 16, 2015, the U.S. District Court of Appeals for the D.C. Circuit resolved an unsettled issue of D.C. law in favor of lenders concerning the doctrine of equitable subrogation. The facts of In re Stevenson were simple: Stevenson and Smith owned a property in DC burdened by a deed of trust secured a loan to Wells Fargo. Stevenson decided to refinance, and got a loan from HSBC Bank, but Smith refused to sign the paperwork for the new loan. HSBC closed on the loan anyway. On its face, then, HSBC’s loan was only secured against Stevenson’s half of the property, not Smith’s. When Stevenson declared bankruptcy, Smith argued that his interest in the property was free from the bank’s lien. The bankruptcy and district courts both held that HSBC’s loan was equitably subrogated to the position of Wells Fargo’s loan as a lien on Smith’s half, and Judge Kavanaugh, for a unanimous panel, affirmed. Although noting “some sympathy for the commonsense premise . . . [that] no signature means no signature,” the Court held that all five prongs of the equitable subrogation test as set forth in Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953, 961 (D.C. 2003) were met. Although the requirement that subrogation would “not work any injustice to the rights of” Smith was “less straightforward” in this case, the Court held that since HSBC’s loan would only be subrogated to the same terms as the prior Wells Fargo loan, he was only prevented “from enjoying a windfall.” Smith alternatively argued that HSBC was precluded from relief because it had “actual knowledge” that Smith refused to sign its deed of trust. Noting that the D.C. Court of Appeals had not resolved whether actual knowledge barred subrogation, the panel held that prior decisions of that court, plus its reliance on the Restatement (Third) of Property: Mortgages, indicated a “liberal approach” to equitable subrogation that would not permit actual knowledge to be a bar. A link to this important opinion is here.

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The Affordable Care Act’s contraceptive mandate requires that a religious non-profit seeking an exception from the mandate must inform either the administrator of its health plan or the Department of Health and Human Services of its objection in order to receive the exception. Several religious non-profits objected to this notice requirement, arguing that the provision of notice itself was a substantial burden under the Religious Freedom Restoration Act, and would trigger substitute health plans that would provide the objectionable contraceptive coverage in violation of their beliefs. The U.S. Court of Appeals for the District of Columbia, in a lengthy and unanimous opinion by Judge Pillard issued on November 14, 2014, rejected the non-profits’ claims and upheld the notice requirement, noting that the “letter or two-page form” required “is more straightforward and minimal than many that are the staples of nonprofit organizations’ compliance with law in the modern administrative state.” The Court also held that there was “a confluence of compelling interests [to support a] seamless application of contraceptive coverage to insured individuals even as [the nonprofits] are excused from providing it.” A link to the opinion in Priests for Life v. Dept. of Health and Human Services is here.

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In a blockbuster opinion issued on July 22, 2014, a 2-1 panel majority of the U.S. Court of Appeals for the District of Columbia Circuit struck down a key portion of the Affordable Care Act that provided billions of dollars in subsidies to those who purchased health insurance on a federal marketplace. The key provision, Section 36B of the IRS Code, makes tax credits available as a form of subsidy to those who purchase health insurance through state-established exchanges. The provision does not expressly provide tax credits for those who buy insurance through a federally-created marketplace established where a state has opted not to create an exchange. Nevertheless, the IRS applied the tax credits to the federal exchanges. In Halbig v. Burwell, Judge Griffith, joined by Senior Judge Randolph, held “with reluctance” that the plain language and the legislative history of the ACA precluded the application of tax credits to the federal exchanges, and declined to adopt the government’s view that such a construction would create absurd results. The majority acknowledged that its decision “will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.” Senior Judge Randolph filed a brief concurrence, noting that to enlarge Section 36B’s reach beyond its terms “would be to engage in distortion, not interpretation,” and that “further legislation” was needed to reach the end the government wished. Senior Judge Edwards filed a strident dissent, arguing that the majority’s decision “portends disastrous consequences” for the ACA, and insisting that Section 36B’s ambiguity and function within the ACA permitted the IRS’s application of tax credits to the federal exchange. A link to the opinion, which is surely not the last word on the topic, is here.

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If a lawyer gets the law wrong when advising the trial judge, and the judge later corrects that error, the lawyer will be hard-pressed to cry foul. Such is the result in 3D Global Solutions, Inc. v. MVM, Inc., where counsel for 3D erroneously stated to the trial court that Virginia law allowed the judge to enter judgment on pre-judgment interest—in fact, that issue should have gone to the jury. After the jury entered its verdict granting 3D compensatory damages, 3D requested that the trial court grant pre-judgment interest, which was ultimately denied when the trial court realized the error. On appeal, the U.S. Court of Appeals for the District of Columbia Circuit affirmed, stating that there was no abuse of discretion for the trial court to correct itself. The Court also held that where opposing counsel was silent while 3D’s counsel made the erroneous statements, that did not constitute an agreement to submit the issue of pre-judgment interest to the trial court. A link to the unanimous published opinion, issued on June 17, 2014 and authored by Judge Wilkins, is here.

 

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The U.S. Court of Appeals for the District of Columbia Circuit, by a narrow 2-1 majority, held that the IRS is not legally obligated to craft a refund policy to return billions of dollars in telephone service excise taxes that should never have been collected—a result that appears to beg for an appeal to the U.S. Supreme Court. The tax, by statute, only applied where the price of the call varied according to distance and time. Although technological advances caused telephone companies to only charge by elapsed time, the IRS continued to collect the tax. Eventually, the courts ruled that those taxes were improper, and the IRS promulgated a Notice announcing how refunds were to be handled. That Notice was then vacated by a federal district court because there had been no notice and comment in violation of the Administrative Procedure Act, but the district court did not mandate that the IRS take any further action. Indeed, the IRS, content to keep the money, has refused to issue any policy to handle refunds. Certain class action taxpayers appealed, demanding that the IRS be ordered to create a refund policy, and seeking an award of their attorneys’ fees. In In re: Long-Distance Telephone Service Federal Excise Tax Refund Litigation-MDL 1798 v. United States, the Court, in an opinion by Senior Circuit Judge Randolph on May 9, 2014, joined by Judge Tatel, ruled that the IRS was not legally obligated to issue a new refund policy, and held that an award of fees to the taxpayers was not appropriate in these circumstances. Judge Brown dissented, arguing that the IRS has a legal duty to create a workable refund scheme, that the courts have authority to order the IRS to execute that duty, and that the taxpayers should have been awarded fees due to the IRS’s recalcitrance. A link to the opinion is here.

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In an important new opinion issued on April 24, 2014, the D.C. Court of Appeals held that a title insurance policy by itself did not create a fiduciary duty between the insurer and insured. In Fogg v. Fidelity National Title Insurance Company, Fogg purchased a parcel of commercial real property, along with title insurance. When a lender to the seller then sued to establish a lien on the property pursuant to an unrecorded deed of trust, Fogg raised the claim with his insurer. Fidelity denied coverage pursuant to exceptions in the policy for liens known by Fogg or unknown to Fidelity, on the basis that Fogg was alleged by the seller’s lender to have known about the unrecorded lien and Fidelity had no knowledge of the lien since it was never recorded. Although Fogg ultimately convinced a jury that he had no knowledge of the lien and was a bona fide purchaser for value, the Court, in a unanimous opinion by Judge Blackburne-Rigsby, held that Fidelity had no duty to defend or any fiduciary duty to Fogg based on the “eight corners” of the policy and original complaint, as set forth in Stevens v. United General Title Ins. Co., 801 A.2d 61 (D.C. 2002), and accordingly upheld the dismissal of his claims. The Court expressly declined to adopt New York’s “factual exception test” in place of the “eight corners rule” as proposed by Fogg. A link to the opinion is here.

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April 1, 2014

The case of Citizens for Responsibility and Ethics in Washington v. Dept. of Justice involved a request under the Freedom of Information Act regarding the investigation of former Rep. Tom DeLay by DOJ, in which the agency declined to produce any of those documents under several bases, including that DeLay himself had a substantial privacy interest that weighed against disclosure. The district court ruled for DOJ, holding that it was categorically inappropriate for those documents to be released given DeLay's privacy interest and the "minimal public interest" at stake. The U.S. Circuit Court of Appeals for the D.C. Circuit, in a unanimous decision authored by Judge Henderson released on April 1, 2014, reversed that judgment and held that no such categorical test was appropriate in this instance. Rather, the agency must make a particularized showing as to each withheld document whether it qualifies under an exemption. The panel also found DOJ's support for other stated exemptions to be insufficient, and remanded for further proceedings. A link to the opinion is here.

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In a case of first impression, the U.S. Court of Appeals for the D.C. Circuit ruled on February 14, 2014, that a settlement agreement embodied in a judicial consent decree is a contract under the Tucker Act, and thus the Court of Federal Claims has jurisdiction to adjudicate claims based on the government’s alleged violation of the settlement’s terms. The Court in Franklin-Mason v. Mabus declined to adopt the Navy’s argument that the government’s breach of a court-supervised settlement was a “wrong without a remedy.” The Court also held that even where the consent decree was entered by a district court, such claims have to be brought in the Court of Federal Claims because the Tucker Act does not contain a waiver of sovereign immunity that would permit a district court to have jurisdiction over the case. A link to the decision is here.

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In a decision affecting the 600,000 to 700,000 tax preparers in the United States, on February 11, 2014 the U.S. Court of Appeals for the DC Circuit held in Sabina Loving v. IRS that the agency could not rely on a statute enacted in 1884 authorizing the IRS to “regulate the practice of representatives of persons before the Department of the Treasury” to promulgate regulations that would have required every tax-return preparer to pass an initial certification exam, pay annual fees, and complete at least 15 hours of continuing education courses each year. The decision is here.

 

For more information, please contact James N. Markels at 202-457-1610 or by email at jmarkels@jackscamp.com.

 

 

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