Phelps v. Mnuchin

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

SOUTH BEND DIVISION

CODY W. PHELPS,

Plaintiff,

v. CAUSE NO. 3:21-CV-327-JD-MGG

MNUCHIN, et al.,

Defendants.

OPINION AND ORDER

Cody W. Phelps, a prisoner without a lawyer filed a lawsuit against “Mnunchin,”

the U.S. Department of Treasury Secretary, and “Yellie,” whom Phelps lists as an

employee of the Internal Revenue Service. ECF 1. “A document filed pro se is to be

liberally construed, and a pro se complaint, however inartfully pleaded, must be held to

less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus,

551 U.S. 89, 94 (2007) (quotation marks and citations omitted). Nevertheless, pursuant to

28 U.S.C. § 1915A, the court must review the merits of a prisoner complaint and dismiss

it if the action is frivolous or malicious, fails to state a claim upon which relief may be

granted, or seeks monetary relief against a defendant who is immune from such relief.

The court applies the same standard as when deciding a motion to dismiss under

Federal Rule of Civil Procedure 12(b)(6). Lagerstrom v. Kingston, 463 F.3d 621, 624 (7th

Cir. 2006). To survive dismissal, a complaint must state a claim for relief that is

plausible on its face. Bissessur v. Indiana Univ. Bd. of Trs., 581 F.3d 599, 602 (7th Cir.

2009). “A claim has facial plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” Id. (internal quotation marks and citation omitted). A plaintiff can

plead himself out of court if he pleads facts that preclude relief. See Edwards v. Snyder,

478 F.3d 827, 830 (7th Cir. 2007); McCready v. Ebay, Inc., 453 F.3d 882, 888 (7th Cir. 2006).

In his complaint Phelps claims the prison passed out a “Legal Notice” regarding

possible eligibility for economic impact payments (EIP) under the Coronavirus Aid,

Relief, and Economic Security Act (the CARES Act). ECF 1 at 2; see also ECF 1-1 at 1.

Phelps alleges he followed the instructions on the form and sent in his 1040s via

certified mail by the deadline, but he has not received any of the EIPs to date. ECF 1 at

2. He alleges he wrote to the IRS regarding the lack of payments, but he has not heard

back yet. Id.

The Legal Notice attached to the complaint (ECF 1-1 at 1) specifically references a

recent federal lawsuit involving the CARES Act. In Scholl v. Mnuchin, 494 F. Supp. 3d

661 (N.D. Cal. Oct. 14, 2020) (Scholl II), the court summarized the underlying issue that

is central to Phelps’s complaint:

The CARES Act, codified in part at section 6428 of the Internal Revenue

Code, 26 U.S.C. § 6428, establishes a tax credit for eligible individuals in

the amount of $1,200 ($2,400 if filing a joint return), plus $500 multiplied

by the number of qualifying children. 26 U.S.C. § 6428(a). For purposes of

the Act, an eligible individual is defined as ‘any individual’ other than (1)

any nonresident alien individual, (2) any individual who is allowed as a

dependent deduction on another taxpayer's return, and (3) an estate or

trust. § 6428(d). The EIP is an advance refund of the subsection (a) tax

credit and subsection (f) describes the mechanism for implementing the

advance refund. Paragraph (1) of subsection (f) provides that ‘each

individual who was an eligible individual for such individual's first

taxable year beginning in 2019 shall be treated as having made a payment

against the tax imposed by chapter 1 for such taxable year in an amount

equal to the advance refund amount for such taxable year.’ § 6428(f)(1).

Paragraph (3) of subsection (f) requires the IRS to ‘refund or credit any

overpayment attributable to this section as rapidly as possible.’ §

6428(f)(3). Additionally, Congress provided that ‘[n]o refund or credit

shall be made or allowed under this subsection after December 31, 2020.’

Id. The CARES Act also has a reconciliation provision between the

advance refund and the tax credit such that if a taxpayer receives an

advance refund of the tax credit then the amount of the credit is reduced

by the aggregate amount of the refund. § 6428(e).

Three days after the President signed the CARES Act, the IRS issued a

news release explaining that the agency would calculate and

automatically issue an EIP to eligible individuals. Though not required to

do so by the Act, the IRS established an online portal for individuals who

are not typically required to file federal income tax returns (e.g., because

an individual’s income is less than $12,200), which allows those non-filers

to enter their information to receive an EIP. Individuals who use the non-

filer online portal ha[d] until October 15, 2020 to register in order to

receive the EIP by the December 31, 2020 deadline imposed by the CARES

Act.

On May 6, 2020, the IRS published responses to ‘Frequently Asked

Questions’ (‘FAQ’) on the IRS.gov website. Question 15 asked ‘Does

someone who is incarcerated qualify for the Payment [i.e., an EIP]?’ The

IRS responded:

A15. No. A Payment made to someone who is incarcerated should

be returned to the IRS by following the instructions about

repayments. A person is incarcerated if he or she is described in

one or more of clauses (i) through (v) of Section 202(x)(1)(A) of the

Social Security Act (42 U.S.C. § 402 (x)(1)(A)(i) through (v)). For a

Payment made with respect to a joint return where only one spouse

is incarcerated, you only need to return the portion of the Payment

made on account of the incarcerated spouse. This amount will be

$1,200 unless adjusted gross income exceeded $150,000.

Scholl II, 494 F. Supp. 3d at 670–71 (footnotes and internal citations to documents

omitted). Based on that FAQ response, inmates filed suit and eventually sought to

certify a class.

In Scholl v. Mnuchin, 489 F. Supp. 3d 1008 (N.D. Cal. Sept. 24, 2020) (Scholl I), the

court preliminarily certified the following class:

All United States citizens and legal permanent residents who:

(a) are or were incarcerated (i.e., confined in a jail, prison, or other

penal institution or correctional facility pursuant to their conviction

of a criminal offense) in the United States, or have been held to

have violated a condition of parole or probation imposed under

federal or state law, at any time from March 27, 2020 to the present;

(b) filed a tax return in 2018 or 2019, or were exempt from a filing

obligation because they earned an income below $12,000 (or $24,400

if filing jointly) in the respective tax year;

(c) were not claimed as a dependent on another person’s tax return;

and

(d) filed their taxes with a valid Social Security Number, and, if

they claimed qualifying children or filed jointly with another

person, those individuals also held a valid Social Security Number.

Excluded from the class are estates and trusts; defendants; the officers,

directors, or employees of any defendant agency; and, any judicial officer

presiding over this action and his/her immediate family and judicial staff.

Scholl I, 489 F. Supp. 3d at 1047.

In Scholl II, the court granted final certification of this class and entered the

following declaratory relief:

[T]he court finds and declares that Title 26 U.S.C. § 6428 does not

authorize defendants to withhold advance refunds or credits from class

members solely because they are or were incarcerated. The court further

finds and declares that defendants’ policy that persons who are or were

incarcerated at any time in 2020 were ineligible for advance refunds under

the Act is both arbitrary and capricious and not in accordance with law.

Scholl II, 494 F. Supp. 3d at 692.

A permanent injunction was entered enjoining the defendants from withholding

benefits pursuant to 26 U.S.C. § 6428 from any class member, and the defendants were

ordered to reconsider EIPs that were denied solely due to an individual’s incarcerated

status. Id. at 692–93. With respect to specific payments the court stated:

The court takes no position on whether plaintiffs or class members are in

fact owed advance refund payments or the amount of those payments.

Indeed, the court’s Rule 23(b)(2) finding was premised on the ‘indivisible

nature of the injunctive or declaratory remedy warranted’ but not ‘an

individualized award of monetary damages.’ Dkt. 50 at 42 (quoting Wal-

Mart Stores, Inc. v. Dukes, 564 U.S. 338, 360-61, 131 S.Ct. 2541, 180 L.Ed. 2d

374 (2011)). The court’s determination in this order is that the IRS’s action

was ‘arbitrary, capricious, . . . or otherwise not in accordance with law’

and the appropriate remedy is to ‘hold unlawful and set aside’ that

agency action. 5 U.S.C. § 706(2). It is incumbent on the IRS, as the agency

charged by Congress, to make individual determinations whether an

individual is an ‘eligible individual’ and meets the various criteria

delineated in the Act.

Id. at 691.

Taking his allegations as true, Phelps is a member of the Scholl class. His

complaint—in which claims he has not received any EIPs even though he submitted the

paperwork for them—was docketed on May 10, 2021, and he requests that the court

order the defendants to send him the $3,200 in EIPs he is allegedly owed under the

CARES Act.1 To the extent Phelps argues his EIPs were denied due to his incarcerated

status, he is already a member of the Scholl class, so he is not entitled to separate

individual relief. See e.g. McNeil v. Guthrie, 945 F.2d 1163, 1165–66 (10th Cir. 1991);

1 He also requests damages in connection with the lack of payment. However, he does not allege,

nor is it reasonable to infer, that he was harmed physically or emotionally by the lack of EIPs. The Prison

Litigation Reform Act limits the relief that is available to prisoners who cannot allege a physical injury.

See Calhoun v. DeTella, 319 F.3d 936, 940 (7th Cir. 2003) (citing 42 U.S.C. § 1997e(e)).

Gillespie v. Crawford, 858 F.2d 1101, 1103 (5th Cir. 1988) (“Separate individual suits may

not be maintained for equitable relief . . .. To allow individual suits would interfere with

the orderly administration of the class action and risk inconsistent adjudications.”); Byrd

v. O’Grady, 1990 WL 114616, *2 (N.D. Ill. July 27, 1990) (citing Gillespie and noting “to the

extent that [plaintiff] seeks injunctive relief already within the scope of the Decree,” he

must do so within the confines of the class).

Similarly, to the extent he asks the court to compel the defendants to provide his

EIPs pursuant to the Scholl case or the CARES Act, he is not entitled to that relief either.

The Scholl court made it clear that, although EIPs could not be denied solely on the basis

of a plaintiff’s incarcerated status, it took no position on specific individual payments

owed and noted that the declaratory relief did not encompass “an individualized award

of monetary damages.” Scholl II, 494 F. Supp. 3d at 691. It is the responsibility of the IRS,

not the court, to make determinations on whether an individual is eligible and “meets

the various criteria delineated in the Act.” Id.; see also Harden v. Yellen, No. 21-CV-0362-

BHL, 2021 WL 1515478, at *2 (E.D. Wis. Apr. 16, 2021) (citing Scholl II and noting that

the plaintiff could not ask the court “to order the IRS to send him the stimulus

payments” because it is incumbent upon the IRS to make those individual

determinations).2

Additionally, there is no suggestion there is a private cause of action under the

CARES Act for receipt of specific non-disbursed funds, and “[i]t is not this Court’s

2 As noted above, the CARES Act deadline for EIP refunds or credits to be made or allowed was

December 31, 2020.

function to raise up a cause of action where a statute has not created one.” Harden, 2021

WL 1515478 at *2 (citing Strange v. Kiowa Tribe of Oklahoma, No. CIV-20-1155, 2021 WL

1095983, at *5 (W.D. Okla. Jan. 27, 2021); see also Comcast Corp. v. Nat. Ass’n of African

Am.-Owned Media, --- U.S. ----, ----, 140 S. Ct. 1009, 1015 (2020) (“[W]e have come to

appreciate that, like substantive federal law itself, private rights of action to enforce

federal law must be created by Congress and raising up causes of action where a statute

has not created them may be a proper function for common-law courts, but not for

federal tribunals.”) (quoting Alexander v. Sandoval, 532 U.S. 275, 286–87 (2001)) (internal

quotation marks and brackets omitted).

For these reasons, Phelps has not stated a viable claim. Although it is usually

necessary to permit a plaintiff the opportunity to file an amended complaint when a

case is dismissed sua sponte, see Luevano v. Wal-Mart, 722 F.3d 1014 (7th Cir. 2013), that is

unnecessary where the amendment would be futile. Hukic v. Aurora Loan Servs., 588 F.3d

420, 432 (7th Cir. 2009) (“[C]ourts have broad discretion to deny leave to amend where .

. . the amendment would be futile.”). Such is the case here. See generally Wheat v.

Mnunchin, No. 2:21-CV-5 ACL, 2021 WL 1751299 (N.D. Mo. May 4, 2021) (citing Scholl

and dismissing—without leave to amend—the prisoner’s complaint which sought court

intervention to receive EIPs under the CARES Act); Hulsey v. Mnunchin, No. 21-cv-

02280-PJH, 2021 WL 1561626 (N.D. Cal. Apr. 21, 2021) (same and noting, “The IRS is not

in contempt simply for failing to send plaintiff the EIP. Plaintiff is also informed that

funds cannot now be distributed pursuant to the CARES Act” because the deadline has

passed.); Coy v. Trump, No. 21-cv-01344-PJH, 2021 WL 965321 (N.D. Cal. March 15, 2021)

(same and also noting at *3, n.1 that “[t]o the extent plaintiff seeks damages for the IRS

not issuing an EIP, he has not shown that he has a private right of action under the

CARES Act.”).

For these reasons, the court DISMISSES this action pursuant to 28 U.S.C. § 1915A.

The clerk is DIRECTED to close this case.

SO ORDERED on May 26, 2021

/s/JON E. DEGUILIO

CHIEF JUDGE

UNITED STATES DISTRICT COURT