Aloe Vera of America, Inc. v. United States

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALOE VERA OF AMERICA, INC., a 

Texas corporation; REX G.

MAUGHAN, husband; RUTH G.

MAUGHAN, wife; MAUGHAN

HOLDINGS INC., an Arizona

corporation,

Plaintiffs-Appellants,

and

GENE YAMAGATA; YAMAGATA

HOLDINGS, INC.,

Plaintiffs,

BUREAU OF NATIONAL AFFAIRS, INC., No. 07-15577

Intervenor,  D.C. No.

v. CV-99-01794-JAT

UNITED STATES OF AMERICA,

Defendant-Appellee,

v.

KIICHIRO HARANO, JUNICHI

HAYAKAWA; YOSHINORI HORIKAWA;

THE YOMIURI SHIMBUN; HITOSHI

UCHIYAMA; TSUENEO WATANABE

TOYOHIKO YAMANOUCHI (Non-party

Witness,)

Movant.



9943

9944 ALOE VERA OF AMERICA v. UNITED STATES

ALOE ALOE VERA OF AMERICA, INC., 

a Texas corporation; REX G.

MAUGHAN, husband; RUTH G.

MAUGHAN, wife; MAUGHAN

HOLDINGS INC., an Arizona

corporation,

Plaintiffs,

BUREAU OF NATIONAL AFFAIRS, INC.,

Intervenor,

and

GENE YAMAGATA; YAMAGATA No. 07-15579

HOLDINGS, INC.,

Plaintiffs-Appellants,  D.C. No.

CV-99-01794-JAT

v. OPINION

UNITED STATES OF AMERICA,

Defendant-Appellee,

v.

KIICHIRO HARANO, JUNICHI

HAYAKAWA; YOSHINORI HORIKAWA;

THE YOMIURI SHIMBUN; HITOSHI

UCHIYAMA; TSUENEO WATANABE

TOYOHIKO YAMANOUCHI (Non-party

Witness,)

Movant.



Appeals from the United States District Court

for the District of Arizona

James A. Teilborg, District Judge, Presiding

Argued and Submitted

October 24, 2008—San Francisco, California

Filed July 30, 2009

ALOE VERA OF AMERICA v. UNITED STATES 9945

Before: J. Clifford Wallace, Sidney R. Thomas and

Susan P. Graber, Circuit Judges.

Opinion by Judge Wallace

ALOE VERA OF AMERICA v. UNITED STATES 9947

COUNSEL

Terrence D. Woolston and Tim A. Tarter, Woolston & Tarter,

P.C., Phoenix, Arizona, and Edwin B. Wainscott and James

A. Ryan, Quarles & Brady, L.L.P., Phoenix, Arizona, for

plaintiffs-appellants Aloe Vera of America, Inc., Rex G.

Maughan, Ruth G. Maughan and Maughan Holdings, Inc.

Merwin D. Grant and Kenneth B. Vaughn, Grant & Vaughn,

P.C., Phoenix, Arizona, for plaintiffs-appellants Gene Yama-

gata and Yamagata Holdings, Inc.

Richard T. Morrison, Acting Assistant Attorney General, Jon-

athan S. Cohen and Karen G. Gregory, Tax Division, Depart-

ment of Justice, Washington, D.C., for the defendant-

appellee.

OPINION

WALLACE, Senior Circuit Judge:

Aloe Vera of America, Inc., Rex Maughan, Ruth Maughan,

Maughan Holdings, Inc., Gene Yamagata, and Yamagata

Holdings, Inc. (collectively, Aloe Vera), appeal from the dis-

trict court’s summary judgment against them on their claims

under 26 U.S.C. § 7431(a)(1). We must determine whether

the statute of limitations in 26 U.S.C. § 7431(d) is jurisdic-

tional. We vacate and remand.

I.

Rex Maughan (Maughan) is the owner of Aloe Vera of

America, Inc. (AVA), a United States corporation that pro-

cesses and sells aloe vera products in the United States, Japan,

and other countries. Maughan and Yamagata, indirectly

through their respective holding companies, are co-owners of

9948 ALOE VERA OF AMERICA v. UNITED STATES

Forever Living Products Japan, Inc. (FLPJ), a Japanese corpo-

ration that purchases products from AVA.

In 1991 and 1992, AVA paid commissions and royalty-

based income received from FLPJ to Maughan and Yamagata.

The Internal Revenue Service (IRS) was concerned about

whether this income was properly reported in the United

States. Consequently, on April 26, 1996, the IRS sent a letter

to the Japanese National Taxing Authority (NTA), proposing

that the authorities simultaneously examine the tax reports of

AVA, Maughan, Yamagata, and FLPJ. The letter estimated

that for tax years 1991 and 1992, Maughan and Yamagata

failed to report commission and royalty income from AVA

product sales to FLPJ, totaling more than $32 million. In

August 1996, the IRS and NTA held a meeting to discuss the

examination. During this time, Aloe Vera apparently did not

know about the examination and did not know that the NTA

and IRS were disclosing information to each other.

On August 15, 1996, the IRS notified Maughan and AVA

of the simultaneous examination. This appears to be the first

notification that Maughan and AVA had of the investigation.

At the end of 1996, the NTA made an audit proposal to FLPJ,

which FLPJ rejected, and in early 1997, the NTA sent correc-

tion notices to FLPJ regarding its tax liabilities. In February

1997, the IRS sent letters to Maughan and AVA to propose

tax adjustments. Shortly thereafter, on March 4, 1997, Maug-

han and AVA took the offensive and filed requests pursuant

to the Freedom of Information Act for copies of documents

exchanged by the NTA and the IRS during the simultaneous

examination.

On October 9, 1997, Japanese news sources reported that

Aloe Vera had failed to report income of 7.7 million yen (at

the time, approximately $60 million) to tax authorities. The

Japanese reporters attributed this information to unidentified

“tax sources” and the IRS. After the news of the simultaneous

examination leaked, Aloe Vera lodged a complaint with the

ALOE VERA OF AMERICA v. UNITED STATES 9949

United States Competent Authority, accusing the NTA of

intentionally disclosing tax information to the public. After an

investigation, the Competent Authority found no proof that

the NTA had leaked the information.

On October 6, 1999, Aloe Vera filed a complaint against

the United States government in the district court under 26

U.S.C. § 7431(a), containing two counts. In Count I, Aloe

Vera alleged that the IRS had disclosed false information to

the NTA in violation of 26 U.S.C. § 6103(a). In Count II,

Aloe Vera alleged that the IRS had further violated section

6103 by disclosing certain tax information to the NTA even

though the IRS knew or should have known that the NTA

would leak the information.

The government moved to dismiss the complaint on several

grounds, including that the complaint was barred on jurisdic-

tional grounds by the two-year statute of limitations contained

in section 7431(d). The district court held that the statute of

limitations in that section was not jurisdictional, but neverthe-

less dismissed the complaint (with leave to amend) because

Aloe Vera had failed to plead a date of discovery of the alleg-

edly unauthorized disclosures within the two-year limitations

period. After Aloe Vera filed an amended complaint, the court

refused to dismiss the action as untimely because the

amended complaint included an allegation that Aloe Vera did

not discover the nature of the IRS disclosures to the NTA

until August 1998, when Aloe Vera received disclosures

under the Freedom of Information Act pursuant to a court

order.

Subsequently, the government moved for summary judg-

ment on both counts, and Aloe Vera moved for summary

judgment on Count I. The district court granted the govern-

ment’s motion on both counts. As to Count I, the district court

held that the government’s disclosure of allegedly false infor-

mation to the NTA did not violate section 6103(a). As to

Count II, the district court held that Aloe Vera had not raised

9950 ALOE VERA OF AMERICA v. UNITED STATES

a genuine issue of material fact as to whether the IRS knew

or should have known, prior to October 1997, that the NTA

routinely leaked information received under the treaty. Aloe

Vera timely appealed, challenging the district court’s sum-

mary judgment on both counts.

We review de novo both the district court’s summary judg-

ment and its interpretation of the Internal Revenue Code. Sid-

diqui v. United States, 359 F.3d 1200, 1202 n.2 (9th Cir.

2004). We review de novo the district court’s denial of a

motion to dismiss. Silvers v. Sony Pictures Entm’t, Inc., 402

F.3d 881, 883 (9th Cir. 2005) (en banc).

II.

[1] Aloe Vera sued the government under 26 U.S.C.

§ 7431(a)(1), which allows a taxpayer to bring a civil action

for damages against the government when an officer or

employee of the government “knowingly, or by reason of neg-

ligence, inspects or discloses any return or return information

with respect to a taxpayer” in violation of section 6103. Sec-

tion 7431(d) provides that any claim for wrongful disclosure

of tax return information “may be brought . . . at any time

within 2 years after the date of discovery by the plaintiff of

the unauthorized inspection or disclosure.”

The Supreme Court recently explained that when the

United States is named as a defendant in an action, a statute

of limitations, such as the one in section 7431(d), falls into

one of two categories. See John R. Sand & Gravel Co. v.

United States, 128 S. Ct. 750, 753 (2008). The first category

includes those statutes of limitations that “seek primarily to

protect defendants against stale or unduly delayed claims.” Id.

These statutes of limitations are subject to forfeiture and

waiver, and the statutes may be equitably tolled. Id.

[2] The second category includes those statutes of limita-

tions that “seek not so much to protect a defendant’s case-

ALOE VERA OF AMERICA v. UNITED STATES 9951

specific interest in timeliness as to achieve a broader system-

related goal, such as . . . limiting the scope of a governmental

waiver of sovereign immunity.” Id. (citations and internal

quotation marks omitted). These latter statutes of limitations

are “more absolute” and are not subject to waiver or equitable

tolling, and the time limits imposed are considered jurisdic-

tional. Id.; see also United States v. Dalm, 494 U.S. 596, 608

(1990) (“[T]he United States, as sovereign, is immune from

suit, save as it consents to be sued . . . and the terms of its

consent to be sued in any court define that court’s jurisdiction

to entertain the suit” (internal quotation marks omitted)).

Because jurisdictional questions must be decided prior to

reaching the merits of a case, we must first determine whether

the limitations period provided in section 7431(d) falls into

this latter category of jurisdictional statutes of limitations.

Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S.

422, 430-31 (2007); see also Hansen v. Dep’t of Treasury,

528 F.3d 597, 600 (9th Cir. 2007) (holding that an appellate

court “has a special obligation to satisfy itself not only of its

own jurisdiction, but also that of the lower courts in a cause

under review” (internal quotation marks omitted)). Reviewing

this issue de novo, United States v. Park Place Assocs., Ltd.,

563 F.3d 907, 918 (9th Cir. 2009), we conclude that it does.

[3] Our first reason for this conclusion is that the structure

of section 7431 indicates that Congress intended the limitation

period to restrict the scope of the government’s waiver of sov-

ereign immunity. Section 7431(a) begins with the statement

that “[i]n general,” taxpayers may bring a civil action for

damages against the government for unlawful inspection or

disclosure of tax returns or tax return information. The

remainder of section 7431, however, limits the scope of that

general waiver of immunity. Section 7431(b) provides a cate-

gorical exception to the waiver—the government shall not be

liable for inspection or disclosure “(1) which results from a

good faith, but erroneous, interpretation of section 6103, or

(2) which is requested by the taxpayer.” Finally, the section

9952 ALOE VERA OF AMERICA v. UNITED STATES

at issue here, section 7431(d), limits the time period in which

the taxpayer may bring an action. Section 7431 as a whole

therefore operates to “limit[ ] the scope of a governmental

waiver of sovereign immunity,” thus strongly indicating that

the limitations period provided is jurisdictional. See John R.

Sand, 128 S. Ct. at 753.

[4] In addition, the language of section 7431(d) shows that

Congress intended the statute of limitations to be absolute.

The inclusion of the phrase “[n]otwithstanding any other pro-

vision of law” at the beginning of the subsection requires that

an action may be brought only within the two-year period. No

provision of law may abrogate that prescription, including any

provision that may provide for equitable tolling or waiver. By

including this phrase, Congress clearly signaled that the stat-

ute of limitations is absolute.

Nevertheless, Aloe Vera argues that our decision in

Cedars-Sinai Medical Center v. Shalala, 125 F.3d 765 (9th

Cir. 1997) compels a different result. To the extent that

Cedars-Sinai is still valid after John R. Sand, see Marley v.

United States, 567 F.3d 1030, 1036 n.3 (9th Cir. 2009), the

holding in Cedars-Sinai does not dictate the jurisdictional

nature of section 7431(d). In Cedars-Sinai, we held that the

statute of limitations in 28 U.S.C. § 2401(a) was not jurisdic-

tional. 125 F.3d at 770. We followed Irwin v. Department of

Veterans Affairs, 498 U.S. 89, 95-96 (1990), the Supreme

Court case which established that “the same rebuttable pre-

sumption of equitable tolling applicable to suits against pri-

vate defendants should also apply to suits against the United

States.” As in Irwin, we stated that “Congress can create a

strictly jurisdictional limitations period if it wishes.” Cedars-

Sinai, 125 F.3d at 770; see Irwin, 498 U.S. at 96. In John R.

Sands, the Court reiterated that “statutory language, for exam-

ple, could rebut the presumption [of equitable tolling] by

demonstrating Congress’ intent to the contrary.” 128 S. Ct. at

756. As discussed above, the language and structure of the

ALOE VERA OF AMERICA v. UNITED STATES 9953

statute indicate that Congress intended to create a jurisdic-

tional limitations period.

[5] For these reasons, we conclude, as the Fifth Circuit has

in Gandy v. United States, 234 F.3d 281, 283 (5th Cir. 2000),

that section 7431(d) is jurisdictional. Therefore, we cannot

rule on the merits of the case unless the action was timely

filed.

III.

[6] We next turn to the question of whether Aloe Vera

timely filed its action. Section 7431(d) provides that an action

must be brought within two years of the “date of discovery by

the plaintiff of the unauthorized inspection or disclosure.” 26

U.S.C. § 7431(d). Although the statute could be clearer, we

hold that the statute begins to run on the date on which a

plaintiff discovers that the allegedly unauthorized inspection

or disclosure has taken place, regardless of whether the plain-

tiff believed at that time that the inspection or disclosure was

authorized. We conclude that “unauthorized” merely modifies

“inspection or disclosure.” So construed, an action pursuant to

section 7431(d) must be filed within two years of the date of

discovery of the supposedly improper disclosure, not the date

when the plaintiff realizes that a disclosure was unauthorized.

Cf. United States v. Kubrick, 444 U.S. 111, 123 (1979) (hold-

ing that the date an action accrues under the Federal Tort

Claims Act is the date when the plaintiff becomes aware of

his injury, not the date when the plaintiff discovers that the

alleged injury may have resulted from negligence, or the date

when a plaintiff recognizes the legal claim).

In this case, the district court ruled that the complaint was

timely filed based on allegations in the amended complaint

that Aloe Vera “did not discover the unauthorized disclosures

by the IRS until August 7, 1998 . . . as a result of a disclosure

order . . . in a Freedom of Information Act suit.” The court

9954 ALOE VERA OF AMERICA v. UNITED STATES

then held that the complaint, which was filed on October 6,

1999, had been timely filed.

The district court did not make findings of fact as to

whether Aloe Vera knew, more than two years before it filed

the complaint, that the IRS had disclosed information to the

NTA. Nor did it make findings of fact as to when Aloe Vera

discovered the specific disclosures it now claims were false.

Rather, the district court relied exclusively on the amended

complaint’s allegation that Aloe Vera did not discover that the

disclosures by the IRS were unauthorized until August 1998.

[7] But the determination of jurisdiction requires more. As

described above, the proper date from which to measure the

timeliness of the complaint under section 7431 is the date

when Aloe Vera discovered the respective disclosures, not the

date when Aloe Vera discovered that the disclosures were

unauthorized. The pleadings alone are inadequate to make this

determination. We therefore vacate the district court’s sum-

mary judgment and remand the case to the district court so

that it can determine in the first instance whether there is suf-

ficient evidence to establish subject matter jurisdiction pursu-

ant to section 7431(d). See Trentacosta v. Frontier Pac.

Aircraft Indus., Inc., 813 F.2d 1553, 1558-59 (9th Cir. 1987)

(holding that where a motion to dismiss “ ‘challenges the

actual existence of subject matter jurisdiction, . . . the pleader

must establish jurisdiction with evidence from other sources

[than the allegations in the complaint], such as affidavits or

depositions’ ”), quoting 5 C. Wright & A. Miller, Federal

Practice and Procedure § 1363, at 653-54 (1969).

IV.

On remand, the district court shall make findings of fact

regarding the dates on which Aloe Vera discovered the

respective disclosures underlying each of Aloe Vera’s claims.

With respect to Count I, the district court shall make findings

of fact regarding the dates on which Aloe Vera discovered

ALOE VERA OF AMERICA v. UNITED STATES 9955

each allegedly false disclosure. The court shall have jurisdic-

tion over only those claims related to disclosures, if any, that

were discovered within the two-year statutory period. With

respect to Count II, the district court shall make findings of

fact regarding the dates on which Aloe Vera discovered that

the IRS had disclosed information to the NTA. If, after mak-

ing these factual findings, the district court holds, and we

agree, that there is subject matter jurisdiction in this case, we

will consider the merits of the appeal from the summary judg-

ment. This panel will retain the appeal if the case returns to

this court.

VACATED AND REMANDED.