Jodi Hohman v. Maurice Eadie

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 18a0131p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

JODI C. HOHMAN; JHOHMAN, LLC; YOU GOT BUSTED ┐

BY ME, LLC; TERRY MILLER, │

Plaintiffs-Appellants, │

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v. > No. 17-1869

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MAURICE EADIE, et al., │

Defendants, │

│

UNITED STATES OF AMERICA; DEPARTMENT OF │

TREASURY; INTERNAL REVENUE SERVICE, │

│

Defendants-Appellees.

│

┘

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 2:16-cv-11429—Matthew F. Leitman, District Judge.

Argued: April 26, 2018

Decided and Filed: July 5, 2018

Before: MERRITT, WHITE, and DONALD, Circuit Judges

_________________

COUNSEL

ARGUED: Stuart M. Schwartz, CLARK HILL PLC, Detroit, Michigan, for Appellants. Paul

A. Allulis, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees.

ON BRIEF: Stuart M. Schwartz, CLARK HILL PLC, Detroit, Michigan, for Appellants. Paul

A. Allulis, Michael J. Haungs, UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C., for Appellees.

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 2

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OPINION

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MERRITT, Circuit Judge. This appeal raises a highly technical issue arising from a

potential conflict between the Internal Revenue Code and the Federal Right to Financial Privacy

Act of 1978, 12 U.S.C. §§ 3401–3422.1 The IRS issued two “John Doe” summonses without

first obtaining approval in a federal district court as required by the Internal Revenue Code

(“Code”), see I.R.C. § 7609(f). The IRS served the summonses on Chase Bank to obtain

financial records relating to two limited liability companies (“LLCs”). Plaintiffs, the LLCs and

subjects of the John Doe summonses, alleged that the IRS’s use of the John Doe summonses to

obtain their financial records violated the Right to Financial Privacy Act (“Act”). The district

court granted the government’s motion to dismiss for lack of subject matter jurisdiction after

determining that sovereign immunity barred Plaintiffs’ claims under the Act. The issues on

appeal are (1) whether the IRS is subject to the Act when it fails to follow its own procedures

under the Code, and (2) whether LLCs fall within the Act’s waiver of sovereign immunity. We

AFFIRM the district court on sovereign immunity grounds.

I. FACTUAL AND PROCEDURAL BACKGROUND

The Internal Revenue Code permits the IRS to serve administrative summonses on third

parties to produce records related to taxpayers whom the IRS is investigating. See I.R.C. § 7603.

Generally, these summonses must identify the person whose records are sought. See I.R.C

§ 7609. However, the IRS may also serve a John Doe summons, which does not identify the

person whose records are sought. I.R.C. § 7609(f). This type of summons may be served only

after a federal district court proceeding in which the IRS establishes that:

(1) the summons relates to the investigation of a particular person or ascertainable

group or class of persons,

(2) there is a reasonable basis for believing that such person or group or class of

persons may fail or may have failed to comply with any provision of any internal

revenue law, and

1Section 3423 was effective on May 24, 2018, after the initiation of this lawsuit.

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 3

(3) the information sought to be obtained. . . is not readily available from other

sources.

Id.

On September 25, 2015, the IRS served a John Doe summons on Chase Bank that sought

financial records for two separate accounts (the “First John Doe Summons”). Five days later, on

September 30, the IRS served a second John Doe summons that sought financial records for a

single account (the “Second John Doe Summons”). The three accounts involved were identified

only by account numbers. The IRS failed to seek approval from a federal district court prior to

issuing either of the John Doe summonses.

In October 2015, Chase Bank notified Jodi C. Hohman (“Hohman”) and her company

JHohman, LLC that it had received the First John Doe Summons from the IRS and that the

summons sought records for accounts relating to them. On November 25, 2015, Hohman and

JHohman, LLC filed a petition in federal district court to quash the summons. In the petition to

quash, Hohman and JHohman, LLC argued that the First John Doe Summons did not meet the

requirements listed in I.R.C. § 7609(f), which requires the IRS to obtain approval from a federal

court before serving a John Doe summons.

In response to the petition to quash, the IRS produced sworn declarations from the IRS

agents who had issued the First John Doe Summons. It attached a partially-redacted copy of the

First John Doe Summons to the declarations. The document revealed the first account number

listed on the summons, but the second account number was redacted. Hohman and JHohman,

LLC reviewed the document and determined that the first account number on that summons

belonged to JHohman, LLC. Because the second account number remained masked, they were

unable to determine who owned that account. Their subsequent investigation led them to believe

that the second account either belonged to Terry Miller (“Miller”), individually, or his company,

You Got Busted By Me, LLC (“Busted, LLC”). Miller is the sole member and owner of Busted,

LLC.

The proceeding also revealed that the IRS had served the Second John Doe Summons on

Chase Bank. The IRS attached an unredacted copy of the Second John Doe Summons to the

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 4

declarations. Hohman and JHohman, LLC determined that the summons sought records relating

to an account belonging to Hohman, individually. They later withdrew their petition to quash.

Plaintiffs Hohman, JHohman, LLC, Miller, and Busted, LLC (collectively, “Plaintiffs”)

filed suit against the United States, two IRS employees, and unnamed Jane and John Does, on

April 20, 2016, alleging that the IRS violated the Right to Financial Privacy Act, the Privacy Act

of 5 U.S.C. § 552a, the Fourth and Fifth Amendments of the Constitution, and the Internal

Revenue Code’s prohibition of the unauthorized disclosure of tax return information.

On June 24, 2016, the government moved to dismiss the complaint. After a hearing, the

district court granted this motion in regards to the claims under the Privacy Act, the Fourth and

Fifth Amendments, and the Code’s prohibition of the unauthorized disclosure of return

information. Hohman v. Eadie, No. 16-cv-11429, 2016 WL 10906875, at *1 (E.D. Mich. Nov.

7, 2016). However, the district court denied the motion to dismiss as to the Right to Financial

Privacy Act claim, which is the sole claim at issue on appeal. The court dismissed the IRS

employees from the suit and held that the sole remaining defendant was the United States.

In its motion to dismiss, the government argued that the Right to Financial Privacy Act

was inapplicable to claims arising out of the issuance of IRS summonses. Specifically, the

United States’s argument rests upon the following language from the Act: “Nothing in this

chapter prohibits the disclosure of financial records in accordance with procedures authorized by

Title 26 [the Internal Revenue Code].” 12 U.S.C. § 3413(c). According to the government,

because the Internal Revenue Code authorizes the service of John Doe summonses, see I.R.C.

§ 7609(f), its service of such summonses in this case was “in accordance with procedures

authorized by [the Code],” and, thus, exempt from the Act. The district court disagreed.

Hohman, 2016 WL 10906875, at *2–3. It determined that the IRS’s service of the John Doe

summonses without prior judicial approval was not “in accordance with” the Code because it

was fundamentally inconsistent with the procedures authorized by the Code. Id. Therefore, the

court held that the service was not exempt from the Act and denied the motion as to the claim

under the Act. Id. at *3.

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 5

On January 17, 2017, the United States filed a second motion to dismiss for lack of

subject matter jurisdiction. The resolution of this motion is the only issue on appeal. The

government contended that sovereign immunity divested the court of subject matter jurisdiction

over Plaintiffs’ claim against the United States. Plaintiffs responded to the government’s motion

by arguing that the waiver of sovereign immunity applied and requested that the district court

grant them jurisdictional discovery before ruling on the motion. Specifically, Plaintiffs asked to

conduct discovery to determine whether Miller, individually, or Busted, LLC, owned the account

whose account number was redacted in the First John Doe Summons. Plaintiffs also requested

discovery to determine whether the IRS actually obtained any documents in response to the

Second John Doe Summons, which sought documents related to an account owned by Hohman,

individually. The district court authorized both discovery requests. Hohman v. United States,

No. 16-cv-11429, 2017 WL 2954713, at *4–5 (E.D. Mich. July 11, 2017).

Additionally, Plaintiffs asked that the district court allow them to subpoena other banks

where Hohman and Miller maintained accounts to determine whether the IRS had improperly

subpoenaed these banks as well. Further, Plaintiffs requested to conduct discovery with respect

to four other individuals whom, based on Plaintiffs’ investigation, likely had John Doe

summonses issued for their accounts, but were not parties to the lawsuit. The district court

denied these discovery requests and instead chose to confine the discovery to Plaintiffs’ accounts

at Chase Bank because those accounts were the subject of the lawsuit and because the court

wanted to limit discovery to allow it to answer the jurisdictional question.

After reviewing the documents produced by discovery, the district court determined that

Busted, LLC—not Miller, individually—owned the second account listed on the First John Doe

Summons. Thus, the three accounts relating to the two summonses belonged to JHohman, LLC,

Busted, LLC, and Hohman. The court also concluded that Chase Bank did not actually send the

IRS any financial records or information relating to Hohman’s individual account in response to

the Second John Doe Summons. Because Hohman did not allege that the IRS actually obtained

any financial records relating to an account owned by Hohman as required by section 3417 of the

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 6

Act, the court determined that Hohman, individually, had failed to state a claim. 2 The district

court also found that the United States was immune from the claims by JHohman, LLC and

Busted, LLC because section 3417’s waiver of sovereign immunity only covered claims by a

“customer” as defined under the Act, and LLCs did not qualify as “customers.” Hohman,

2017 WL 2954713, at *5–7. It subsequently granted the government’s motion to dismiss. Id. at

*7. Plaintiffs appeal.

II. ANALYSIS

Plaintiffs allege that the IRS’s attempts to obtain their financial records through the use of

John Doe summonses violated the Federal Right to Financial Privacy Act. They argue that

contrary to the district court’s holding, LLCs fall within the Act’s waiver of sovereign immunity.

Plaintiffs also claim that the district court abused its discretion in only granting them limited

jurisdictional discovery. In response, the United States contends that IRS summonses are not

subject to the Act, but even if this court disagrees, sovereign immunity still bars Plaintiffs’

claims. The government also asserts that the district court properly denied the additional

discovery requests given the broad nature of the inquiry and the lack of factual allegations

regarding any summonses other than the two summonses at issue.

We review de novo the dismissal of a complaint for lack of subject matter jurisdiction.

Hamdi ex rel. Hamdi v. Napolitano, 620 F.3d 615, 619 (6th Cir. 2010). We accept any factual

findings the district court made unless the findings are clearly erroneous. Davis v. United States,

499 F.3d 590, 593–94 (6th Cir. 2007). Further, this court reviews a district court’s decisions

regarding discovery matters for abuse of discretion. Dortch v. Fowler, 588 F.3d 396, 400 (6th

Cir. 2009). We “reverse only if we are firmly convinced of a mistake that affects substantial

rights and amounts to more than harmless error.” Pressman v. Franklin Nat’l Bank, 384 F.3d

182, 187 (6th Cir. 2004) (internal quotation and citation omitted).

2The district court’s determination that Hohman had failed to state a claim against the IRS is not at issue on

appeal.

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 7

A. Possible Remedies under the Internal Revenue Code

Section 7609 of the Internal Revenue Code establishes a system of notice and

intervention rights for taxpayers whose information is within records subject to a third-party

summons. However, when the IRS does not know the identity of a taxpayer and seeks to serve a

John Doe summons, the IRS must first establish in a proceeding in federal district court that

(1) the summons relates to the investigation of a particular person or ascertainable group;

(2) there is a reasonable basis for believing that this person or group may have failed to comply

with the Code; and (3) the information sought to be obtained is not readily available from other

sources. I.R.C. § 7609(f). In the case at hand, the IRS did not follow the proper procedure when

it failed to obtain court approval before issuing two John Doe summonses to Chase Bank.

The government contends in its brief that imposition of damages under the Act for

violations of the Code would conflict with the Code’s comprehensive damages scheme. Turning

to relevant provisions of the Code, it appears that no monetary remedy is available under these

circumstances, and the parties conceded this at oral argument. See I.R.C. §§ 7431–7435. The

Code provision that comes the closest to providing a remedy for Plaintiffs in this case is I.R.C.

§ 7433. Section 7433 authorizes taxpayers to sue the government for damages sustained as a

result of reckless, intentional, or negligent violations of the Code by IRS employees in

connection with any collection of federal tax. This provision is the “exclusive remedy for

recovering damages resulting from such actions.” I.R.C. § 7433(a). However, section 7433 only

authorizes damages for claims in connection with any collection of federal tax, and does not

allow for damages for violations made during “the assessment or tax determination part of the

process.” Miller v. United States, 66 F.3d 220, 222 (9th Cir. 1995). The assessment involves the

decision to impose tax liability while the collection deals with the IRS attempting to collect the

taxes owed.

In Shaw v. United States, the Fifth Circuit stated 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 improper assessment of taxes.” 20 F.3d 182, 184 (5th Cir. 1994). It

recognized that “[a]lthough in its early form the statute granted taxpayers the right to sue ‘for

damages in connection with the determination or collection of any Federal tax,’ H.R. CONF.

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REP. NO. 100–1104, 100th Cong., 2d Sess. 228 (1988), reprinted in 1988 U.S.C.C.A.N. 4515,

5288 (emphasis added), Congress later deleted that portion of the statute that referred to

determination of taxes.” Id. Thus, it appears that Congress intended to provide a remedy for

violations in the collection of tax, but not in the assessment and determination of tax. Plaintiffs

do not have a monetary remedy under the Code.3

B. Background of the Right to Financial Privacy Act

The Right to Financial Privacy Act, 12 U.S.C. § 3401, was enacted as a response to

United States v. Miller, 425 U.S. 435, 442 (1976), where the Supreme Court held that a customer

of a financial institution had “no legitimate ‘expectation of privacy’” and could not contest

government access to financial records under the Fourth Amendment. “Congress intended the

[Act] ‘to protect the customers of financial institutions from unwarranted intrusion into their

records while at the same time permitting legitimate law enforcement activity’ by requiring

federal agencies” to follow specified procedures when attempting to obtain a customer’s

financial records. Neece v. IRS, 922 F.2d 573, 575 (10th Cir. 1990) (quoting H.R. Rep. No. 95-

1383, at 6 (1978), reprinted in 1978 U.S. Code. Cong. & Admin. News 9273, 9305, 9278).

The Act “outlines numerous restrictions on the disclosure of financial records held by

bank employees and federal regulatory authorities.” In re Knoxville News-Sentinel Co., Inc.,

723 F.2d 470, 476 (6th Cir. 1983). However, the Act is narrow and limits the types of customers

to whom it applies and the kinds of records it protects. See SEC v. Jerry T. O’Brien, Inc.,

467 U.S. 735, 745 (1984). In all, the Act seeks to balance the customers’ right of privacy with

law enforcement’s need to obtain financial records based on legitimate investigations. See

Anderson v. La Junta State Bank, 115 F.3d 756, 758 (10th Cir. 1997).

Plaintiffs bring their claims under section 3417 of the Act. That section creates a private

cause of action for violations of the Act and waives the United States’ sovereign immunity for

certain claims by a “customer.” It reads:

3We note that while the Code does not appear to allow monetary remedies in this instance, IRS employees

are subject to dismissal for violations of the Code for purposes of retaliating against, or harassing, a taxpayer. See

I.R.C. § 7605(b). IRS employees are also subject to discharge and criminal prosecution for committing unlawful

acts. I.R.C. § 7214(a).

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 9

(a) Liability of Agencies or Departments of United States or Financial

Institutions Any agency or department of the United States . . . obtaining or

disclosing financial records or information contained therein in violation of [the

Act] is liable to the customer to whom such records relate in an amount equal to

the sum of—

(1) $100 without regard to the volume of records involved;

(2) any actual damages sustained by the customer as a result of the disclosure;

(3) such punitive damages as the court may allow, where the violation is found to

have been willful or intentional; and

(4) in the case of any successful action to enforce liability under this section, the

costs of the action together with reasonable attorney’s fees as determined by

the court.

12 U.S.C. § 3417 (emphasis added).

C. Whether the IRS is Subject to the Right to Financial Privacy Act

The Right to Financial Privacy Act prohibits government access to the financial records

of a customer unless pursuant “to an administrative subpoena or summons which meets the

requirements of section 3405” of the Act. 12 U.S.C. § 3402. In Plaintiffs’ claims under section

3417, they allege that the IRS violated section 3405 when it served the John Doe Summonses

without first satisfying certain conditions as required by that section. Section 3405 states that an

agency may obtain financial records pursuant to an administrative summons only if—(1) there is

reason to believe the records sought are connected to a legitimate law enforcement inquiry; (2) a

copy of the summons is served on the customer prior to service on the financial institution along

with a notice stating the nature of the inquiry and advising the customer of his or her right to

contest the summons in federal court; and (3) ten days have passed since service and the

customer has not initiated a challenge in court. 12 U.S.C. § 3405. However, the Act provides an

exception, which states: “Nothing in this chapter prohibits the disclosure of financial records in

accordance with procedures authorized by [the Internal Revenue Code].” 12 U.S.C. § 3413(c)

(emphasis added).

The parties dispute the meaning of the “in accordance with” language. When confronted

with this question, the district court stated that from a plain reading, the exception only applies to

IRS summonses issued “in accordance with” procedures under the Code. The court reasoned

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 10

that because the IRS failed to follow the requisite Code procedures by issuing summonses

without first obtaining approval in federal district court, it was subject to the provisions of the

Act, including damages claims.

On appeal, Plaintiffs contend that the district court correctly determined that the plain

meaning of this language is that the IRS has to act “in accordance with” the Code, or it is subject

to the Act. In support, Plaintiffs cite Neece v. IRS, 922 F.2d 573, 577 (10th Cir. 1990). In

Neece, the IRS made a similar argument when it asserted that it was allowed to informally

review bank records under I.R.C. § 7602. The IRS referenced the same provision of the Act

authorizing “disclosure of financial records in accordance with procedures authorized by [the

Internal Revenue Code].” 12 U.S.C. § 3413(c). The Tenth Circuit disagreed and determined that

while I.R.C. § 7602 permitted the IRS to issue a third-party summons, I.R.C. § 7609 set forth the

procedure the IRS was required to follow. Neece, 922 F.2d at 577–78. The IRS had not

followed the proper procedure under its own Code, and so the IRS was bound by the Act. Id. at

577.

In response, the government argues that the Act has no application to any activities

carried out under the Code, including the issuance and enforcement of IRS summonses. In

support, it cites the legislative history to argue that Congress indicated that this exception was

intended to exempt IRS summonses generally because they are governed by their own privacy

regime. It also contends that Neece is distinguishable because it involved an instance where the

IRS obtained records informally, instead of through the issuance of a summons.

There are two possible ways to read the phrase “in accordance with.” Congress either

intended for this language to mean: (1) that the Code and not the Act governs the IRS, or (2) that

the IRS must follow the procedures under the Code, or it is subject to the Act. A review of the

relevant provision and legislative history indicates that Congress did not give any thought to or

explain what it intended to have happen in a case like this. The House Committee Report states

that under the exception, because IRS administrative summonses are already subject to the

privacy safeguards of I.R.C. § 7609, they are exempted from the procedures of the Act.

H.R. Rep. 95–1383, at 226 (1978).

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 11

Because we uphold the district court’s ruling on sovereign immunity grounds, however,

there is no need for us to resolve this issue.

D. Whether Limited Liability Companies Have Standing under the Act

The issue is whether the United States has waived its sovereign immunity to allow

limited liability companies to sue under the Right to Financial Privacy Act. “The doctrine of

sovereign immunity removes subject matter jurisdiction in lawsuits against the United States

unless the government has consented to suit.” Beamon v. Brown, 125 F.3d 965, 967 (6th Cir.

1997). “A waiver of the Federal Government’s sovereign immunity must be unequivocally

expressed in statutory text.” Lane v. Pena, 518 U.S. 187, 192 (1996). Further, courts must

construe this waiver narrowly and resolve any ambiguities in favor of immunity. United States

v. Williams, 514 U.S. 527, 531 (1995).

The relevant provision in 12 U.S.C. § 3417 states: “Any agency or department of the

United States . . . obtaining or disclosing financial records or information contained therein in

violation of [the Act] is liable to the customer to whom such records relate.” A “customer” is

defined under the Act as “any person or authorized representative of that person who utilized or

is utilizing any service of a financial institution.” 12 U.S.C. § 3401(5) (emphasis added).

A “person” is defined as “an individual or a partnership of five or fewer individuals.” 12 U.S.C.

§ 3401(4) (emphasis added). Thus, the question at hand is whether Plaintiffs, two LLCs, qualify

as a “person,” and therefore a “customer” with standing under the Act.

The district court reasoned that an LLC is not “an individual or a partnership of five or

fewer individuals” and therefore not a “person.” Hohman, 2017 WL 2954713, at *6. Thus, by

strictly interpreting the statute, it found that an LLC could not be a “customer” under the Act

with standing to sue. Id. Other courts have confronted this question when different types of

business entities have attempted to bring suit under the Act. We analyze these holdings below.

1. Sole Proprietorship

Courts have concluded that a sole proprietorship has standing under the Act. “It would

strain the imagination to conclude that Congress intended to afford partnerships of five

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 12

individuals the protections of the Act, but not sole proprietorships. A sole proprietorship is

nothing more than a partnership of one.” Hunt v. U.S. SEC, 520 F. Supp. 580, 604 (N.D. Tex.

1981); see also United States v. Whitty, 688 F. Supp. 48, 58 n.9 (D. Me. 1988) (“Unlike

corporations, sole proprietorships are covered by the [Act].”).

2. Limited Partnership

A limited partnership has also been held to be a “person” under the Act. See Inspector

Gen. of U.S. Dep’t. of Agric. v. Great Lakes Bancorp, 825 F. Supp. 790, 793 (E.D. Mich. 1993)

(“Great Lakes”). In Great Lakes, the district court reasoned that “the plain language of the

statute evinces an intent to include (rather than exclude) all types of partnerships.” Id. Further, it

thought that “[t]he fact that Congress recognizes the distinction between limited partnerships and

general partnerships, and yet did not exclude the former from those who are included as

‘persons’ within the Act, signifies an intent to protect all ‘partnerships (whether they are general

partnerships, co-partnerships, or limited partnerships) of five or fewer individuals.’” The court

determined that the focus remains on the size of the partnership, not the type.4

3. Corporation

The courts that have confronted the question unanimously agree that corporations do not

qualify as a “customer” within the meaning of the Act. See Pittsburgh Nat. Bank v. United

States, 771 F.2d 73, 75–76 (3d Cir. 1985) (finding that by its terms, the Act only applies to the

financial records of individuals and small partnerships, not corporations); Spa Flying Service,

Inc. v. United States, 724 F.2d 95, 96 (8th Cir. 1984) (“[T]he Act unambiguously limits its

protection to customers and small partnerships.”); Collins v. Commodity Future Trading

Comm’n, 737 F. Supp. 1467, 1477 (N.D. Ill. 1990) (same). Additionally, because a corporation

has been held to not be a “customer” and therefore not an “individual” under the Act, Great

4The government filed an additional citation after oral argument in regards to Great Lakes. It clarified that

the case concerned only limited partnerships after this court asked whether the case applied to limited liability

partnerships at oral argument. The government’s position is that only general partnerships are included within the

definition of the term “partnership” as used in the Act’s definition of the term “person.” It asserts that even if this

court adopts the reasoning of Great Lakes, that reasoning would reach neither limited liability partnerships nor

LLCs.

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 13

Lakes also held “that a partnership comprised of one or more corporate partners is not a

‘partnership of five of fewer individuals.’” Great Lakes, 825 F. Supp. at 794.

4. Limited Liability Company

Whether an LLC has standing under the Act is an issue of first impression in the circuit

courts, and has only been addressed by two federal district courts. See Flatt v. U.S. SEC, 2010

WL 1524328, at *3 (S.D. Fla. Apr. 14, 2010); Exchange Point LLC v. U.S. SEC, 100 F. Supp. 2d

172, 176 (S.D.N.Y. 1999). The court in Exchange Point, which Flatt relied on, stated:

Federal courts have recognized that a major difference in practice between a

limited partnership and an LLC is the more extensive limitations in liability

accorded to members of the latter. The LLC “need have no equivalent to a

general partner, that is, an owner who has unlimited personal liability for the

debts of the firm.” Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir. 1998)

(applying Wisconsin LLC law). Additionally, a member of an LLC is not subject

to the same risks that he or she may become liable for the company’s debts[.]

Exchange Point LLC, 100 F. Supp. 2d at 174. The court continued its discussion:

In addition to the omission of any term that could encompass an LLC in the

statutory definition of person in the [Act], the Court notes a key difference

between an LLC and all of the entities that have been held to be persons under the

[Act]: an LLC need not have any member or manager that is liable for the debts of

the company, even in the case of a wholly owned LLC with only one member-

manager.

Id. at 175. The Exchange Point court found “some substance in the argument that a single

member LLC has many of the same attributes and privacy interests as a small partnership or sole

proprietorship,” but determined that the plain meaning of the statute “simply cannot countenance

the inclusion of a limited liability company in the term ‘individual or partnership of five or fewer

individuals.’” Id. at 176.

Plaintiffs argue that the district court erred in failing to consider the congressional

purpose behind the Act when determining the scope of Congress’s waiver of sovereign

immunity. They assert that the district court failed to consider the realities of LLCs, specifically

single-member LLCs. Plaintiffs contend that Exchange Point’s plain-meaning reasoning fails

because single-member LLCs, are “disregarded” by the government for federal income tax

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 14

purposes. If a single-member LLC does not elect to be treated as a corporation for taxation

purposes, then the single member will be liable individually for the company’s taxes. Plaintiffs

contend that this leaves the single member as well as the LLC in need of protection under the

Act.

Plaintiffs make substantive arguments that LLCs should be included within the definition

of “customer” under the Act. Admittedly, a single-member LLC resembles individuals or

partnerships covered under the Act. However, the district court properly recognized that “it is

never [the Court’s] job to rewrite a constitutionally valid statutory text under the banner of

speculation about what Congress might have done had it faced a question that . . . it never faced.”

Hohman, 2017 WL 2954713, at *6 (quoting Henson v. Santander Consumer USA Inc., 137 S. Ct.

1718, 1725 (2017)). Here, an LLC is plainly not within the plain meaning of the words

“individual or a partnership of less than five individuals.” Neither Plaintiffs nor this court may

supplement the unambiguous statutory language. Cf. Brackfield & Assocs. P’ship v. Branch

Banking & Tr. Co., 645 F. App’x 428, 431 (6th Cir. 2016) (declining to adopt plaintiff’s

proposed approach to statutory construction because doing so would greatly broaden the

interpretation of the Right to Financial Privacy Act).

Additionally, Exchange Point was correct in noting that an LLC, unlike other entities that

have been held to be persons under the Act, need not have any member that remains liable for

the company’s debts, even in the case of a single-member LLC. While it is true that single-

member LLCs, are “disregarded” by the government for federal income tax purposes, that fact

does not overcome the limited liability aspect and strict textual approach that this court must

apply when interpreting waivers of sovereign immunity. See FAA v. Cooper, 566 U.S. 284, 290

(2012) (“[A] waiver of sovereign immunity must be ‘unequivocally expressed’ in the statutory

text.”). In sum, we hold that an LLC does not fall under the Act’s waiver of sovereign immunity

and the district court correctly held that it lacked sovereign immunity over Plaintiffs’ claims.

E. Whether the District Court Properly Granted Limited Jurisdictional Discovery

Plaintiffs argue that the district court abused its discretion by unduly limiting the scope of

discovery to Hohman and Miller individually and their respective individual accounts held at

No. 17-1869 Hohman, et al. v. Eadie, et al. Page 15

Chase Bank. As mentioned previously, Plaintiffs requested to issue subpoenas to the other banks

where Hohman and Miller maintain accounts to find out if the government improperly issued

subpoenas to those banks as well. Plaintiffs also asked for discovery with respect to four other

individuals who based on Plaintiffs’ investigation, likely had “secret” John Doe summonses

issued for their accounts. The district court chose to confine the discovery to the Plaintiffs’

accounts at Chase Bank, the accounts that were the subject of the lawsuit, before ruling on the

motion to dismiss.

Here, the district court specifically limited discovery to address the jurisdictional issues

involved. That was within its discretion. The court allowed Plaintiffs access to the information

necessary to establish their claims before ruling on the motion to dismiss. See Anwar v. Dow

Chem. Co., 876 F.3d 841, 854 (6th Cir. 2017) (“We have noted that a plaintiff should have

access to information necessary to establish her claim, but that a plaintiff may not be permitted to

‘go fishing’; the trial court retains discretion.”). Further, the four other individuals who Plaintiffs

believed likely had “secret” John Doe summonses issued for their accounts were not parties to

the lawsuit and Plaintiffs make no argument that any information from them would relate to the

narrow jurisdictional questions for which discovery was permitted. District courts maintain

discretion to limit the scope of discovery, and the court did not make a mistake that affected

Plaintiffs’ substantial rights here.

III. CONCLUSION

For the reasons explained above, we affirm.