Gandy Nursery, Inc. v. United States

United States Court of Appeals

Fifth Circuit

F I L E D

UNITED STATES COURT OF APPEALS

For the Fifth Circuit June 13, 2005

Charles R. Fulbruge III

Clerk

No. 04-40718

GANDY NURSERY, INC., DENNIS C. GANDY, doing business as Dennis

Gandy Nursery, GANDY MARKETING AND TRUCKING, INC.,

DENNIS C. GANDY,

Plaintiffs-Appellees,

VERSUS

UNITED STATES OF AMERICA

Defendant-Appellant.

Appeal from the United States District Court

For the Eastern District of Texas

Before REAVLEY, DeMOSS, and PRADO, Circuit Judges.

DeMOSS, Circuit Judge:

Gandy Nursery, Inc. (“Gandy Nursery”), Dennis C. Gandy, d/b/a

Dennis Gandy Nursery, Gandy Marketing and Trucking, Inc. (“GM&T”),

and Dennis C. Gandy (“Gandy”), (collectively, “Appellees”) brought

an action in district court against Appellant United States (the

“Government”), seeking a refund for tax penalty assessments and

damages for failure to release certain tax liens.1 Appellees were

1

By agreement of the parties pursuant to 28 U.S.C. § 636(c),

the magistrate judge was designated to exercise civil jurisdiction

over the proceedings. In this opinion, the magistrate judge will

awarded both tax refunds and damages. On appeal to this Court, the

prior panel remanded with instructions to consider whether the

Government engaged in unauthorized collection practices under 26

U.S.C. § 7433 when it filed two federal tax liens against GM&T in

1995, and if so, to determine the amount of damages relating

thereto. On remand, the district court found the Government

violated § 7433 as a matter of law. An advisory jury thereafter

determined that GM&T incurred $100,000 in damages as a result of

the Government’s unlawful collection practices. GM&T was also

awarded costs and attorney’s fees as well as post-judgment interest

on damages awarded GM&T in the first trial. The Government timely

filed the instant appeal. For the reasons set forth below, we

REVERSE and REMAND the case for further proceedings consistent with

the discussion herein.

BACKGROUND AND PROCEDURAL HISTORY

Appellees filed suit against the Government in November 1995,

seeking a refund and abatement of employment tax penalties, income

tax, and income tax penalties. Appellees asserted claims under 26

U.S.C. § 7432 for alleged negligent failure to release tax liens as

well as a cause of action for damages under 26 U.S.C. § 7433 for

alleged unauthorized tax collection practices.2 The case was tried

be referred to as the district court and his rulings as decisions

issued by the district court.

2

Liability under § 7432, which is not the focus of our

inquiry, attaches where an officer or employee of the Internal

2

before the district court and an advisory jury, which concluded

that Appellees were entitled to a total of $11,262.42 on their

employment tax refund claims. The jury also determined that GM&T

was entitled to recover $16,800 under § 7432 as a result of the

Government’s failure to release a tax lien filed in 1995. While

the jury recommended that GM&T also be awarded $630,555.97 for

unauthorized collection practices under § 7433, the district court

nevertheless determined that it was without jurisdiction to

consider Appellees’ § 7433 claims as they related to liens filed in

1993.3

Revenue Service knowingly, or by reason of negligence, fails to

release a tax lien on property of the taxpayer. 26 U.S.C. § 7432.

Section 7433, the statutory provision at the heart of the issue

here, provides in pertinent part:

If, in connection with any collection of Federal tax with

respect to a taxpayer, any officer or employee of the

Internal Revenue Service recklessly or intentionally, or

by reason of negligence, 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.

Id. § 7433(a).

3

The district court’s jurisdictional determination was

premised on the limitations period found in § 7433, which provides:

“Notwithstanding any other provision of law, an action to enforce

liability created under this section may be brought without regard

to the amount in controversy and may be brought only within 2 years

after the date the right of action accrues.” 26 U.S.C. §

7433(d)(3). Recognizing that the Government’s sovereign immunity

is not a waivable defense where the plaintiff does not file suit

within the prescribed limitations period, see Gandy Nursery, Inc.

v. United States, 318 F.3d 631, 637 (5th Cir. 2003) (“Gandy I”)

(citation omitted), the district court correctly concluded that the

suit initiated by Appellees in November 1995 was filed out of time

because the liens made subject of the § 7433 claims were filed in

3

On appeal, a panel of this Court affirmed the tax refunds as

well as the damages awarded by the district court against the

Government under § 7432. Gandy Nursery, Inc. v. United States, 318

F.3d 631 (5th Cir. 2003) (“Gandy I”). Further, this Court remanded

the case to the district court to consider whether the Government

was liable for unauthorized collection actions under § 7433 when it

filed liens against GM&T in April and September of 1995.

On remand, the district court determined that the Government

was liable under § 7433 as a matter of law. A second advisory jury

was impaneled to determine the damages, if any, GM&T incurred as a

result of the Government’s unlawful filing of the liens at issue.

The jury recommended that GM&T recover $388,500 in damages. The

district court reduced the amount recoverable to $100,000 in

accordance with the statutory cap set forth in § 7433(b).4 The

district court also awarded Appellees $317,738.50 in costs and

attorney’s fees and ordered that the Government pay post-judgment

August 1993.

4

The former section 7433(b) provided, in relevant part:

(b) Damages. — In any action brought under subsection

(a), . . . upon a finding of liability on the part of the

defendant, the defendant shall be liable to the plaintiff

in an amount equal to the lesser of $100,000 or the sum

of –

(1) actual, direct economic damages sustained

by the plaintiff as a proximate result of the

reckless or intentional actions of the officer

or employee, and

(2) the costs of the action.

26 U.S.C. § 7433(b) (1994). Section 7433(b) was amended in 1996 to

increase the amount recoverable from $100,000 to $1,000,000. Id.

§ 7433 (2002).

4

interest on the $16,800 awarded GM&T after the first trial relating

to the Government’s negligent failure to release certain liens

under § 7432. The Government timely filed the instant appeal.

DISCUSSION

I. Whether the district court erred in determining the

Government was liable to GM&T as a matter of law under 26

U.S.C. § 7433 when it filed certain liens in 1995.

We review de novo the question of whether the district court

erred in finding the Government was liable to GM&T as a matter of

law. See Moulton v. City of Beaumont, 991 F.2d 227, 230 (5th Cir.

1993).

On appeal, the Government maintains the district court erred

when it concluded that GM&T was entitled to recover under § 7433 as

a matter of law. Specifically, the Government argues the district

court improperly concluded liability had been established either in

the district court’s first order, or by this Court’s opinion in

Gandy I. The Government suggests that while the district court

made numerous findings in its first order, none of these findings

specifically addressed whether there was a specific violation of

the Internal Revenue Code (the “Code”) when the Government filed

certain liens against GM&T in April and September of 1995.5 The

5

The Government cites to the record for one instance in which

it concedes the district court made a specific finding as to the

unlawful filing of a tax lien. The lien at issue there, however,

was a 1993 lien, which as this Court previously noted, cannot be

the basis for recovery under § 7433 because the action was filed

out of time. Gandy I, 318 F.3d at 636-37.

5

Government further contends that nowhere in the language of this

Court’s opinion in Gandy I is there a determination that the

Government violated § 7433 when it filed the 1995 liens. Moreover,

according to the Government, the district court on remand failed to

substantively address any liability issues relating to § 7433 and

the 1995 liens. The Government maintains that the absence of such

support in the record renders the district court’s finding of

liability under § 7433 to be without foundation and therefore

erroneous.

Appellees, meanwhile, argue the district court supplied the

necessary findings supporting its liability determination for the

liens filed in 1995 in both its first order and its order on

remand. In addition, Appellees maintain that this Court’s decision

in Gandy I also provides a finding of liability against the

Government.

In order to prevail under § 7433, a taxpayer must establish

that the Government recklessly or intentionally disregarded a

provision of the Code in connection with the collection of federal

taxes. See 26 U.S.C. § 7433(a); Gandy I, 318 F.3d at 636-37. We

begin our analysis by reviewing the relevant portions of each of

the previous orders issued by the courts in this proceeding to

evaluate whether there has been a finding of liability against the

Government. In its first order, the district court states in its

findings of fact:

46. The underlying taxes and penalties in regard to the

6

1993 tax liens had been paid by the [Appellees] and the

penalties associated with such taxes had been abated.

. . .

53. Certain penalties that had been abated by the Austin

IRS Service Center were again reassessed against the

[Appellees] without notice or demand as required under 26

U.S.C. §§ 6201, 6212, 6303.

. . .

55. The IRS office in Tyler later reassessed penalties

against the [Appellees] and placed the penalties and

interest back on the transcripts without providing proper

notice and demand.

Gandy Nursery, Inc. v. United States, No. CIV. A.6:95CV837, 2001 WL

790242, at *4 (E.D. Tex. May 31, 2001).

While the district court makes several explicit findings

relating to the lien filed in 1993 by the Government against Dennis

Gandy as an individual, nowhere in the first order, however, does

the district court mention the 1995 liens filed against GM&T,

either expressly or impliedly. Accordingly, in the absence of any

other relevant findings, nothing in the district court’s first

order can be read as supporting a § 7433 liability determination

against the Government for the liens filed against GM&T in April

and September 1995.

Appellees suggest that on the first appeal, this Court

previously made a liability determination against the Government,

and thus the issue is law of the case. The specific language

relied upon by Appellees focuses on a statement in a footnote that

provides:

[T]estimony and other evidence in the record clearly

shows that the IRS filed a lien in April. There is also

record evidence of a lien filed in September 1995.

7

Gandy I, 318 F.3d at 638 n.3. Without more, the above statement

simply notes the existence of liens filed in 1995 and fails to even

acknowledge against which entity those liens were filed. Again, we

cannot interpret this language as supporting a specific finding of

§ 7433 liability against the Government for filing the 1995 liens

against GM&T.

In another portion of this Court’s prior opinion, the panel

addressed Appellees’ contention that they were entitled to recover

under § 7433 for the Government’s failure to release the 1995 liens

in addition to the recovery they sought under the same statute for

the Government’s initial filing of those liens. Id. at 636-38.

This Court discussed in general terms how the filing of a lien can

constitute an unauthorized collection activity under § 7433, but

held that the failure to release such a lien cannot. Id. at 638.

Therefore, the Court concluded, “the district court should have

considered damages with respect to the filing of the[] 1995 liens

with respect to Section 7433. Accordingly, these claims fit within

the scope of Section 7433 and therefore should be remanded to the

district court for further adjudication.” Id.

Admittedly, the directive to the district court to consider

damages can arguably be read to assume that any underlying

liability had been established. However, when read in conjunction

with the remainder of the opinion, any perceived ambiguity is

necessarily eliminated. Specifically, the Gandy I Court, in its

concluding paragraph, stated:

8

Accordingly, we remand to the district court for further

consideration regarding whether the filing of the April

1995 and September 1995 liens may constitute unauthorized

collection actions under Section 7433. In all other

respects, the district court’s judgment is affirmed.

Gandy I, 318 F.3d at 639 (emphasis added). It is clear from this

language that the mandate of this Court was that the district court

make findings and conclusions as to the liability, if any, of the

Government under § 7433 when it filed liens in April and September

1995. This Court did not make any liability determinations on this

issue.

Then, on remand from this Court in Gandy I, the district court

issued an order declaring that the Government was liable to GM&T

under § 7433 as a matter of law. In support of its finding, the

court cites to Gandy I, specifically referring to page 639 of the

opinion. The only relevant passage from that page is the

concluding paragraph cited above, which as we have noted, cannot be

read to have established liability under § 7433. The district

court did make additional findings in its findings of fact and

conclusions of law, although many were restatements from its first

order.6 The district court stated:

3. After extensive briefing by both parties on the

remand issues, a telephone hearing was held in this Court

on August 20, 2003. After due consideration of each

parties’ Briefs and Argument, this Court held that the

United States is liable as a matter of law as to the

6

Moreover, the findings of fact and conclusions of law issued

on remand related to the advisory jury’s determinations as to the

subsequent damages awarded Appellees, not to the preliminary issue

of liability under § 7433.

9

issue of whether the filing of the April and September

1995 liens constituted unauthorized collection actions

under 26 U.S.C. § 7433 (Doc. # 213).

4. The Court finds that the evidence supports that

“[c]ertain penalties that had been abated by the Austin

IRS Service Center were again reassessed against the

Plaintiffs without notice or demand as required under 26

U.S.C. §§ 6201 6212 6303.” Amended Findings of Fact at ¶

53.

Gandy Nursery, Inc. v. United States, No. CIV. A.6:95CV837, 2004 WL

838062, at *1 (E.D. Tex. Mar. 3, 2004).

The district court’s reference to the reassessment of the tax

penalties in paragraph 4 is the precise excerpt from its findings

in its first order relating to the 1993 liens. Again, there does

not appear to be anything in the district court’s order on remand

that specifically discusses the 1995 liens or the propriety of the

Government’s filing of those liens. Without more we cannot, under

de novo review, assess whether the district court erred when it

made its finding as to the Government’s liability under § 7433.

As stated earlier, to prevail under § 7433, a taxpayer must

establish that the Government recklessly or intentionally

disregarded a provision of the Code in connection with the

collection of federal taxes. See 26 U.S.C. § 7433(a); Gandy I, 318

F.3d at 636-37. We have previously determined that § 7433 is not

the proper vehicle for recovering damages relating to an improper

assessment of taxes. Shaw v. United States, 20 F.3d 182, 184 (5th

Cir. 1994). In Shaw, this Court observed that demonstrating an

improper assessment of taxes and establishing improper collection

10

activities involve proof of distinctive facts. Id. “[T]o prove a

claim for improper assessment, a taxpayer must demonstrate why no

taxes are owed, but to prove a claim for improper collection

practices, the taxpayer must demonstrate that the IRS did not

follow the prescribed methods of acquiring assets.” Id. The Shaw

Court concluded that “based upon the plain language of the statute,

which is clearly supported by the statute’s legislative history, a

taxpayer cannot seek damages under § 7433 for an improper

assessment of taxes.” Id. The filing of a tax lien based on an

invalid tax assessment is not a per se violation of § 7433.

The relevant findings made by the district court specifically

focus on the reassessment of employment tax penalties without

notice, not the means by which the Government attempted to

thereafter collect on those monies it believed were owed.

Moreover, the record reflects that such reassessments were made

against Dennis Gandy d/b/a Gandy Nursery, not GM&T. The record

evidence also reveals that the lien filed against GM&T in April

1995 related not to any reassessment of tax penalties, but to

unpaid interest GM&T owed on prior unpaid employment taxes.7

Further, there is no evidence that a lien was filed specifically

against GM&T in September 1995.

The specific mandate of this Court in Gandy I was for the

district court to consider “whether the filing of the April 1995

7

GM&T tardily filed its employment tax returns in 1992 and was

subsequently required to pay interest as a consequence thereof.

11

and September 1995 liens may constitute unauthorized collection

actions under Section 7433.” 318 F.3d at 639. Based on a review

of the district court’s findings of fact in its first order and its

order on remand, we conclude the district court has not made

findings necessary to support its liability determination under §

7433 for the Government’s filing of the liens in April and

September of 1995.8

II. Whether the district court erred in awarding GM&T post-

judgment interest on damages it was previously awarded

under 26 U.S.C. § 7432.

In its order on remand, the district court awarded GM&T post-

judgment interest on the $16,800 awarded at the close of the first

trial for the Government’s failure to release a lien in violation

of § 7432. The district court specifically ordered that the

Government pay interest beginning from November 7, 2001 (the date

on which the Government withdrew its protective appeal) at the

overpayment rate established by I.R.C. § 6621.9

8

If on remand the district court concludes that the Government

recklessly or intentional disregarded a Code provision when it

filed the 1995 liens, it must then reevaluate its award for costs

and attorney’s fees. On appeal, the Government challenges the

reasonableness of the award insofar as the award: (1) reflected

work performed for claims on which Appellees were not successful,

see Wilkerson v. United States, 67 F.3d 112, 119 (5th Cir. 1995);

and (2) upwardly departed from the statutory cap for hourly rates,

see Pierce v. Underwood, 487 U.S. 552, 571-72 (1988); Perales v.

Casillas, 950 F.2d 1066, 1078 (5th Cir. 1992); Bode v. United

States, 919 F.2d 1044, 1050 (5th Cir. 1990). Because we remand on

the issue of liability, however, we need not address these issues

on appeal.

9

The Government notes that it has since paid GM&T the $16,800

judgment.

12

Interest is recoverable against the United States only when

specifically provided for by statute because only by statute can

the United States waive its sovereign immunity. Dickerson ex rel.

Dickerson v. United States, 280 F.3d 470, 478 (5th Cir. 2002)

(quotations omitted). The Government maintains the district court

erroneously determined that the appropriate waiver of sovereign

immunity for the awarding of such interest under the Code is found

at 28 U.S.C. § 1961(c)(1).

The Government relies on an Eighth Circuit case in which the

court rejected taxpayers’ attempts to recover interest on their

attorney’s fees that were recovered under § 7430 — the section

providing for costs and fees. Miller v. Alamo, 992 F.2d 766, 767

(8th Cir. 1993). In Miller, the court concluded that Congress’s

failure to place the waiver of sovereign immunity directly in §

7430 evidenced its intent that post-judgment interest should not be

allowable for awards provided for under that section. Likewise, in

Wilkerson, this Court determined that interest was not recoverable

on fees awarded under § 7430 because nothing within the statutory

language indicated Congress’s intent to expressly waive the

Government’s immunity from interest awards. 67 F.3d at 120 n.15.

The Government here similarly argues that the absence of an

express waiver in § 7432 demonstrates Congress’s intent that post-

judgment interest is not recoverable on a damages award for the

Government’s failure to release a lien. We find the reasoning

employed by the Eighth Circuit persuasive.

13

It is well settled in this Circuit that interest on claims

against the Government cannot be recovered absent a constitutional

requirement or an express statutory provision. Knights of Ku Klux

Klan, Realm of La. v. East Baton Rouge Parish Sch. Bd., 735 F.2d

895, 902 (5th Cir. 1984) (citations omitted). Congress has

promulgated statutes that expressly provide for the recovery of

interest on money judgments against the Government, see, e.g., 28

U.S.C. §§ 2411, 2516, and thus we presume that Congress knew how to

prescribe the recovery of interest if it intended the Government to

be so responsible under § 7432. Section 7432, however, contains no

express waiver of sovereign immunity. Further, we do not read §

1961(c) as providing the necessary waiver of sovereign immunity.10

Section 1961(c) allows the recovery of interest against the

Government, but only involving suits filed in the United States

Court of Appeals for the Federal Circuit and the United States

Court of Federal Claims. 28 U.S.C. § 1961(c)(2)-(3) (2004). The

judgment made the subject of the instant case was not rendered in

either of those two courts.

Absent an express waiver of sovereign immunity in § 7432 or in

10

Section 1961(c)(1) provides:

This section shall not apply in any judgment of any court

with respect to any internal revenue tax case. Interest

shall be allowed in such cases at the underpayment rate

or overpayment rate (whichever is appropriate)

established under section 6621 of the Internal Revenue

Code of 1986.

28 U.S.C. § 1961(c)(1) (2004).

14

any other relevant statutory provision, the district court erred in

awarding GM&T post-judgment interest on the damages it recovered

under § 7432.

CONCLUSION

Having carefully reviewed the entire record of this case, and

having fully considered the parties’ respective briefing and

arguments, we conclude that the district court did not make the

findings necessary to support its determination that the

Government, as a matter of law, recklessly or intentionally filed

tax liens against GM&T in April and September of 1995 in disregard

of the relevant Code provisions and regulations. Moreover, the

district court reversibly erred when it awarded GM&T post-judgment

interest on damages it was previously awarded under § 7432.

Accordingly, we REVERSE the order of the district court and REMAND

this proceeding so that the district court can provide specific

findings as to whether the Government recklessly or intentionally

violated the Code, and thus whether the Government is liable under

§ 7433, when it filed liens in April and September of 1995.

REVERSED and REMANDED.

15