Bank of America Corporation v. United States

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

3:17-cv-546-RJC-DSC

BANK OF AMERICA )

CORPORATION, )

)

Plaintiff, )

)

v. )

) ORDER

)

UNITED STATES OF AMERICA )

)

Defendant. )

____________________________________ )

THIS MATTER comes before the Court on Defendant’s Motion to Transfer

Venue to the Court of Federal Claims, or in the Alternative, to Dismiss for Lack of

Subject Matter Jurisdiction (“Defendant’s Motion”), (Doc. No. 32), and the parties’

associated briefs and exhibits; the Magistrate Judge’s Memorandum and

Recommendation (“M&R”), (Doc. No. 47), denying Defendant’s Motion to Transfer

Venue and recommending that this Court deny Defendant’s alternative Motion to

Dismiss; Defendant’s Objections thereto, (Doc. No. 49); and Plaintiff’s responsive

briefing, (Doc. No. 50).

I. BACKGROUND

Neither party has objected to the Magistrate Judge’s statement of the

factual and procedural background of this case. Therefore, the Court adopts the

facts as set forth in the M&R.

II. STANDARD OF REVIEW

A district court may assign dispositive pretrial matters, including motions to

dismiss, to a magistrate judge for “proposed findings of fact and recommendations.”

28 U.S.C. § 636(b)(1)(A) and (B). The Federal Magistrate Act provides that “a district

court shall make a de novo determination of those portions of the report or specific

proposed findings or recommendations to which objection is made.” Id. at

§ 636(b)(1)(C); Fed. R. Civ. P. 72(b)(3); Camby v. Davis, 718 F.2d 198, 200 (4th Cir.

1983).

The district court has authority to assign non-dispositive pretrial matters

pending before the Court to a magistrate judge to “hear and determine.” 28 U.S.C.

§ 636(b)(1)(A). When reviewing an objection to a magistrate judge’s order on a non-

dispositive matter, the district court must set aside or modify any portion of that

order which is clearly erroneous or contrary to law. Id.; Fed. R. Civ. P. 72(a). An order

transferring a case to another district court is generally viewed as a non-dispositive

matter, and thus is reviewed under Rule 72(a). See Cadence Bank, N.A. v. Horry

Props., LLC, No. 2:09-cv-44, 2010 WL 4026392, at *2 n.4 (W.D.N.C. Oct. 13, 2010). A

magistrate judge’s order is contrary to law if the judge failed to apply or misapplied

statutes, case law, or procedural rules. See Catskill Dev. LLC v. Park Place Entm’t

Corp., 206 F.R.D. 78, 86 (S.D.N.Y. 2002).

III. DISCUSSION

Defendant filed an objection to the M&R’s recommendation to deny

Defendant’s alternative Motion to Dismiss. In support of its objection, Defendant

essentially makes two arguments: (1) the Sixth Circuit’s analysis in E.W. Scripps

Co. v. United States, 420 F.3d 589 (6th Cir. 2005), and related cases erroneously

interpreted 28 U.S.C. § 1346(a)(1); and (2) 28 U.S.C. § 1346(a)(1) only applies to

refund—not overpayment—suits. The Court finds both objections meritless and

concludes that this Court has subject matter jurisdiction over Plaintiff’s claim.

A. The M&R correctly concluded that the weight of authority provides that

district courts have subject matter jurisdiction over overpayment

interest claims under 28 U.S.C. § 1346(a)(1).

28 U.S.C. § 1346(a)(1) grants concurrent jurisdiction to district courts

and the Court of Federal Claims:

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 sum alleged to have been excessive or in any

manner wrongfully collected under the internal-revenue laws;

28 U.S.C. § 1346(a)(1) (2018).

As the M&R notes, most courts that have considered the issue—including the

Sixth Circuit—have held that, under § 1346(a)(1), district courts have subject

matter jurisdiction over overpayment claims.1 Indeed, only one unreported district

court opinion concludes otherwise.2

The Court finds the Sixth Circuit’s rationale in Scripps persuasive. In

Scripps, the Sixth Circuit held that the broad language of § 1346(a)(1)—specifically

the phrase “any sum”—includes overpayment interest:

The payment of statutory interest reflects an attempt to return the

taxpayer and the Government to the same positions they would have

been in if no overpayment of tax had been made. If the Government does

not compensate the taxpayer for the time-value of the tax overpayment,

the Government has retained more money than it is due, i.e., an

“excessive sum.”

Scripps, 420 F.3d at 597 (internal citations omitted).

Defendant argues that Scripps misinterprets the phrase “any sum alleged to

have been excessive” because the preceding “alleged to have been” indicates the

taxpayer’s perspective. (Doc. No. 49 at 13). Defendant contends that overpayment

claims involve situations where the United States paid insufficient interest to a

taxpayer as opposed to taking an excessive sum of interest from a taxpayer. Id.

Thus, from the taxpayer’s perspective, the United States did not take an “excessive

sum,” but rather paid out an insufficient sum. Id.

1 See Ford Motor Co. v. United States, 768 F.3d 580, 584 (6th Cir. 2014); E.W. Scripps Co. v. United

States, 420 F.3d 589 (6th Cir. 2005); Pfizer, Inc. v. United States, No. 16-civ-1870, 2016 WL 6902196,

at *6 (S.D.N.Y. Oct. 31, 2016); Wichita Ctr. for Graduate Med. Educ., Inc. v. United States, No. 16-

1054, 2016 WL 7386454, at *6-7 (D. Kan. Jul. 26, 2016); Doolin v. United States, 737 F. Supp. 732, 734

(N.D.N.Y. Apr. 20, 1990), rev’d on other grounds, 918 F.2d 15 (2d Cir. 1990); Trs. Of Bulkeley Sch. vs.

United States, 628 F. Supp. 802, 803 (D. Conn. Feb. 18, 1986); Triangle Corp. v. United States, 592 F.

Supp. 1316, 1318 (D. Conn. 1984).

2 See Amoco Prod. Co. v. United States, No. 87-c-8811, 1988 WL 9112, at *5 (N.D. Ill. Feb. 5, 1988).

As Scripps points out, Defendant’s narrow reading focuses only on the literal,

current state of the accounting ledger between the taxpayer and the United States.

In the overpayment scenario, even though the United States does not take an

“excessive sum” from the taxpayer at first, the government would retain an

“excessive sum” by keeping the accumulated interest on funds it was never owed.

Regardless of whether the government initially takes an excessive sum from the

taxpayer or subsequently pays out an insufficient sum to the taxpayer, the end

result is the same from the taxpayer’s perspective: in either scenario, the taxpayer

is due money from the United States.

In sum, the Court agrees with the M&R’s conclusion and finds persuasive the

rationale set forth in Scripps and found by a great majority of courts that have

considered the issue of overpayment claims.

B. Defendant’s interpretation of § 1346(a)(1) and § 7422(a) is

unpersuasive.

Second, Defendant argues that because 28 U.S.C. § 1346(a)(1) and I.R.C.

§ 7422(a) contain overlapping language, § 7422(a)’s header describing “refunds”

should be transposed onto § 1346(a)(1) as well. Therefore, Defendant contends

§ 1346(a)(1) jurisdiction should only apply to ‘refunds’ and not overpayment suits.

As stated above, § 1346(a)(1) grants concurrent jurisdiction to federal district

courts and the Court of Federal Claims. 28 U.S.C. § 1346(a)(1). Conversely, I.R.C.

§ 7422(a) establishes pre-requisites for refund suits:

(a) No suit prior to filing claim for refund. – No suit or proceeding shall

be maintained in any court for the recovery of any internal revenue tax

alleged to have been erroneously or illegally assessed or collected, or of

any penalty claimed to have been collected without authority, or of any

sum alleged to have been excessive or in any manner wrongfully

collected, until a claim for refund or credit has been duly filed with the

Secretary, according to the provisions of law in that regard, and the

regulations of the Secretary established in pursuance thereof.

I.R.C. § 7422(a) (2018); see also United States v. Dalm, 494 U.S. 596, 601 (1990)

(“[Section 7422(a)] qualif[ies] a taxpayer’s right to bring a refund suit upon

compliance with certain conditions.”); Flora v. United States, 362 U.S. 145, 148

(1960) (“[Section 7422(a)] is a jurisdictional condition precedent to maintenance of a

refund suit in a District Court.”).

Although much of the relevant language of § 1346(a)(1) and § 7422(a) overlap,

a plain reading of the qualifying header in § 7422(a) – “No suit prior to filing claim

for refund” – explicitly limits the rest of the paragraph to refund suits. In contrast,

§ 1346(a)(1) includes no such heading. The Court finds this distinction meaningful.

As explained above, and as the parties agree, overpayment claims are not

refund suits. This is because the United States is compensating the taxpayer for the

interest on the taxpayer’s money, not returning funds improperly paid. See

Alexander Proudfoot Co. v. U.S., 454 F.2d 1379, 1384 (Ct. Cl. 1972) (“[I]nterest is

paid by the United States, not as a refund of interest previously paid by the

taxpayer on demand of the Service, but simply because the Government has had the

use of money found to belong to the taxpayer.”); (Doc. No. 33 at 12 (citing same

language)); (Doc. No. 37 at 10 (referencing same language)). Therefore, the logical

conclusion is that the categorical and procedural qualifications of § 7422(a) do not

apply to non-refund suits, such as overpayment claims.

Indeed, the majority of courts interpreting § 1346(a)(1) and finding that

district courts have subject matter jurisdiction do not entertain § 7422(a) limitation

challenges. See Scripps, 420 F.3d at 592 (“That district courts have subject matter

jurisdiction over taxpayer suits for interest on tax overpayments at first blush

appears so obvious that many courts have found no need to dwell on the question at

any great length.”). Most district courts have reasoned that if they have jurisdiction

over the initial refund claims, then they must also have jurisdiction over suits that

concern the amount of interest to be paid on those refunds. See Doolin v. United

States, 737 F. Supp. 732, 733–34 (N.D.N.Y. Apr. 20, 1990), rev’d on other grounds,

918 F.2d 15 (2d Cir. 1990).

Defendant cites to Electrical Welfare Trust Fund v. United States, 907 F.3d

165 (4th Cir. 2018) in order to support its position that § 1346(a)(1) and § 7422(a)

should be read . In Electrical Welfare, the plaintiff sued the United

States in order to recover over $1 million paid to the Department of Health and

Human Services (“HHS”) as part of the Affordable Care Act of 2010. Id. at 166. On

appeal, the plaintiff claimed that “its payment to the Department of Health and

Human Services was an ‘internal-revenue tax’ under § 1346, allowing it to proceed

in federal district court.” Id. at 165. The Fourth Circuit affirmed the district court’s

dismissal for lack of subject matter jurisdiction, finding that the payment was not a

“tax” within the meaning of 1346(a)(1)’s “internal-revenue tax.” Id. at 170. In

3 “ [Latin ‘in the same matter’] . . . It is a canon of construction that statutes that are

may be construed together, so that inconsistencies in one statute may be resolved by

looking at another statute on the same subject.” , Black’s Law Dictionary (10th ed.

2014).

reaching this decision, the Fourth Circuit isolated and identified the phrase

“internal revenue tax” as the phrase at issue in Electrical Welfare. Id. at 168. In

contrast, a different phrase of § 1346(a)(1) controls the instant action: “any sum

alleged to have been excessive.”

Although the Fourth Circuit in Electrical Welfare read both § 1346(a)(1) and

§ 7422(a) , the Fourth Circuit did so for the limited purpose of

interpreting the phrase “internal-revenue tax”—not the “any sum” or “excessive”

language at issue here. The Supreme Court previously held that the phrase

“internal-revenue tax” should be read in the disjunctive and thus does not impose

any qualifications on the phrases “any sum” or “excessive.”4 Additionally, the claim

in Electrical Welfare involved a refund claim where the plaintiff already paid over

$1 million to HHS. Id. at 166. Conversely, here, Plaintiff is seeking overpayment

interest—not a refund—and therefore, Electrical Welfare is distinguishable.

In sum, the Court is not persuaded by Defendant’s interpretation argument.

The Court finds that I.R.C. § 7422(a) and 28 U.S.C. § 1346(a)(1) serve different

functions and that § 7422(a) does not limit § 1346(a)(1). The Court agrees with the

M&R and finds that this Court has jurisdiction over Plaintiff’s overpayment claims.

4 Flora, 362 U.S. 149–150 (“But we believe that [§1346(a)(1)] more readily lends itself to the disjunctive

reading which is suggested by the connective ‘or.’ That is, ‘any sum,’ instead of being related to ‘any

internal-revenue tax’ and ‘any penalty,’ may refer to amounts which are neither taxes nor penalties.

Under this interpretation, the function of the phrase is to permit suit for recovery of items which might

not be designated as either ‘taxes’ or ‘penalties’ by Congress or the courts. One obvious example of such

a ‘sum’ is interest.”).

And for the same reasons, the Court likewise finds that the Magistrate Judge’s

denial of Defendant’s Motion to Transfer Venue to the Court of Federal Claims was

proper. Therefore, the Court DENIES Defendant’s Motion.

IV. CONCLUSION

After an independent review of the M&R, (Doc. No. 47), Defendant’s

Objections thereto, (Doc. No. 49), and a de novo review of the record, the Court

concludes that the M&R’s recommendation is correct and in accordance with law.

IT IS THEREFORE ORDERED THAT:

(1) The Magistrate Judge’s M&R on Defendant’s Motion, (Doc. No. 47),

is AFFIRMED and ADOPTED; and

(2) Defendant’s Motion to Transfer Venue to the Court of Federal

Claims, or in the Alternative, to Dismiss for Lack of Subject Matter

Jurisdiction, (Doc. No. 32), is DENIED.

Signed: June 30, 2019

beta). Cornel

Robert J. Conrad, Jr. us

United States District Judge ee