3rd Circuit Reverses Itself on TP Suit

[The Observer]

UNITED STATES OF AMERICA
v.
JOSEPH P. SCHIAFFINO,
Appellant

Release Date: JULY 02, 2008


UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

(D.C. Civil Action No. 07-cv-02194)

Present: AMBRO, FUENTES, and FISHER, Circuit Judges

O R D E R

The petition for panel rehearing filed by Appellee in the above entitled case, having been submitted to the judges who participated in the decision of this Court, is hereby GRANTED. The non-precedential opinion filed April 22, 2008 is hereby VACATED. A subsequent opinion will be issued.

By the Court

Thomas L. Ambro
Circuit Judge

Dated:
Joseph P. Schiaffino
Thomas J. Clark, Esq.
Laurie Snyder, Esq.



Here is the original ruling




UNITED STATES OF AMERICA
v.
JOSEPH P. SCHIAFFINO,
Appellant

Release Date: APRIL 22, 2008


NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 07-cv-02194)
District Judge: Honorable Robert F. Kelly

Submitted Pursuant to Third Circuit LAR 34.1(a)
April 21, 2008

Before: AMBRO, FUENTES and FISHER, Circuit Judges

(Opinion filed: April 22, 2008)

OPINION

PER CURIAM

Joseph P. Schiaffino appeals from the District Court's orders denying his motion to remand to state court and granting the United States' motion to dismiss. We will vacate these orders and remand to the District Court for further proceedings consistent with this opinion.

Schiaffino alleges that he received a Notice of Federal Tax Lien from the Internal Revenue Service ("IRS") in 2005. He also alleges that he immediately challenged the validity of the lien by "filing" an "Affidavit of Non-Liability," and sending a "Presumptive Notice" and an "Affidavit of Truth" to the two IRS agents who signed the Notice. After receiving no response, he filed a "Petition for Rule to Show Cause" in the Court of Common Pleas of Bucks County, Pennsylvania, requesting that the court direct the United States to show cause why the lien "should not be nullified and removed from the Court's records." The United States proceeded to remove the matter to the District Court pursuant to 28 U.S.C. section 1442(a)(1), which provides that a civil action against the United States in state court in connection with the collection of federal revenue may be removed to federal court. The United States then filed a motion in the District Court to dismiss the suit for lack of subject matter jurisdiction. Schiaffino did not oppose the United States' motion. Instead, he filed a motion to remand the case to state court, in which he challenged the removal procedures followed by the United States.

On July 3, 2007, the District Court issued separate orders granting the motion to dismiss and denying the motion to remand to state court. Schiaffino now appeals those orders. We have jurisdiction over the appeal pursuant to 28 U.S.C. section 1291. See Spring Garden Assoc., L.P. v. Resolution Trust Corp., 26 F.3d 412, 414 (3d Cir. 1994).

Schiaffino argues on appeal that the action was improperly removed because the United States was designated as the plaintiff in the state court action and therefore lacked authority under 28 U.S.C. section 1441 to invoke the removal jurisdiction of the District Court. We believe the manner in which the parties were identified on the state court caption is not relevant to the question of whether the action was properly removed to the District Court. It is clear from Schiaffino's state court petition that he is contesting the validity of a federal tax lien and seeking an injunction against the United States. Because Schiaffino brought an action in state court pertaining to the collection of federal revenue, the United States properly invoked 28 U.S.C. section 1442(a)(1) in removing the case to the District Court.

We further conclude that the District Court correctly determined that it lacked subject matter jurisdiction over Schiaffino's action to invalidate a federal tax lien. The Anti-Injunction Act generally deprives courts of jurisdiction over suits instituted "for the purpose of restraining the assessment or collection of any tax." 26 U.S.C. section 7421(a). "The manifest purpose of section 7421(a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund." Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 7 (1962). Schiaffino has not identified any exceptions to the Anti-Injunction Act which might be applicable to his claim. See South Carolina v. Regan, 465 U.S. 367, 378 (1984) (providing for an exception to the Anti-Injunction Act where taxpayer has no alternative remedy); Enochs, 370 U.S. at 7 (recognizing a limited exception to the Anti-Injunction Act where government has no chance of prevailing on merits of the dispute). In particular, he has not discussed the merits of his challenge, nor is there any indication that he paid the tax and attempted to obtain a refund by filing a claim with the IRS.

Finally, we address Schiaffino's argument that the District Court erred in issuing a final judgment dismissing the case for lack of jurisdiction instead of remanding the case to state court. He cites to 28 U.S.C. section 1447(c), which provides, in relevant part, that "f at any time before final judgment it appears that the district court lacks subject matter jurisdiction [over a case removed from state court], the case shall be remanded." The District Court did not explain why it would not remand the case pursuant to section 1447(c). However, the United States argues on appeal that a remand to state court would be futile, given that Schiaffino may not proceed with his claim in state court due to sovereign immunity and also because section 7421(a) precludes a suit to restrain tax collection in "any court." We have held, however, that a case removed from state court must be remanded under section 1447(c) once the District Court determines that it does not have subject matter jurisdiction over the case, and we have declined to recognize a futility exception to that rule. See Bromwell v. Michigan Mut. Ins. Co., 115 F.3d 208, 214 (3d Cir. 1997). Thus, we conclude that the District Court should have remanded the case to state court pursuant to section 1447(c), instead of dismissing the case outright.

For the foregoing reasons, we will vacate the District Court's orders denying the motion to remand and granting the motion to dismiss. We will remand the matter to the District Court with instructions to remand the case to the Court of Common Pleas of Bucks County, Pennsylvania.

[notorial dissent]

And this is going to accomplish what exactly? I'm confused.

[Dr. Caligari]

And this is going to accomplish what exactly? I'm confused.

In the original decision, the court held (correctly) that the IRS could remove the case from state court to federal court, held (correctly) the the Anti-Injunction Act barred the plaintiff from suing the IRS to remove a tax lien, and then held (stupidly) that the federal court should not have dismissed the case but should have sent it back to the state court (even though the Anti-Injunction Act barred the plaintiff from suing in state court just as much as it barred him from suing in federal court).

The Government then moved for rehearing, which was granted. Ten quatloos says they are going to fix the third (stupid) part of their orignal ruling, while leaving intact the first two (correct) parts.

[LPC]

The problem is that the anti-injunction act is often cited as authority for the proposition that the courts do not have "jurisdiction" to enjoin or prevent the collection of taxes. But the statute itself (26 USC 7421(a)) does not use the word "jurisdiction" and states that, with certain exceptions not relevant here, "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." The statute is not jurisdictional in the sense of deciding which court should or should not hear the dispute, but is a substantive rule of law declaring that there is no remedy in any court.

Some of the problems that arise when courts refer to laws or rules as "jurisdictional" are described in Kontrick v. Ryan, 540 U.S. 443 (2004), in which Justice Ginsberg, writing for a unanimous court, wrote:

Courts, including this Court, it is true, have been less than meticulous in this regard; they have more than occasionally used the term “jurisdictional” to describe emphatic time prescriptions in rules of court. “Jurisdiction,” the Court has aptly observed, “is a word of many, too many, meanings.” Steel Co. v. Citizens for Better Environment, 523 U.S. 83, 90 (1998) (internal quotation marks omitted). For example, we have described Federal Rule of Civil Procedure 6(b), on time enlargement, and correspondingly, Federal Rule of Criminal Procedure 45(b), on extending time, as “mandatory and jurisdictional.” United States v. Robinson, 361 U.S. 220, 228—229 (1960). But see Carlisle v. United States, 517 U.S. 416, 419—433 (1996) (holding that, over the prosecutor’s objection, a court may not grant a postverdict motion for a judgment of acquittal filed one day outside the time limit allowed by Fed. Rule Crim. Proc. 29(c); this Court did not characterize the Rule as “jurisdictional”); Taylor v. Freeland & Kronz, 503 U.S. 638, 642—646 (1992) (similar ruling regarding Fed. Rule Bkrtcy. Proc. 4003(b)). “[C]lassify[ing] time prescriptions, even rigid ones, under the heading ‘subject matter jurisdiction’ ” can be confounding. Carlisle, 517 U.S., at 434 (Ginsburg, J., concurring). Clarity would be facilitated if courts and litigants used the label “jurisdictional” not for claim-processing rules, but only for prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) falling within a court’s adjudicatory authority.

It seems to me that the court in the Schiaffino case had both subject matter jurisdiction over the meaning and effect of federal tax law, and jurisdiction over the parties, and the decision applying the anti-injunction act should be considered a decision on the merits and not jurisdictional.

What difference does it make? A dismissal for lack of jurisdiction is usually considered to be a nullity, and does not affect the rights of the parties to continue to litigate the dispute in another court. As the Third Circuit realized in granting the rehearing, a dismissal for lack of jurisdiction would mean that the taxpayer is free to resume his lawsuit in state court, which is clearly not the result Congress intended.

[SteveSy]

So there is no way to sue the government to remove a tax lien? That's what it looks like.
Forget the fact that the lien may or may not be valid, assume it is, it's irrelevant to my question.

It seems if I understand it correctly the government could commit a wrong to an individual, continue to commit that wrong and the individual has no recourse. Lack of subject matter jurisdiction on the one side and Sovereign immunity on the other. I realize the individual has the option to just pay whatever the government is demanding and sue for a refund but that is separate and apart from resolving the original wrong. Paying the lien off is in effect admitting the lien itself was valid in the first place, even if the amount was wrong, it seems to me. Does that make sense?

I thought the purpose and substance of sovereign immunity was to prevent a government from having to pay for a wrong not to allow a government to commit wrongs without repercussion. Removing the lien would in substance cost the government nothing.

[Famspear]

So there is no way to sue the government to remove a tax lien? That's what it looks like.
Forget the fact that the lien may or may not be valid, assume it is, it's irrelevant to my question.

It seems if I understand it correctly the government could commit a wrong to an individual, continue to commit that wrong and the individual has no recourse. Lack of subject matter jurisdiction on the one side and Sovereign immunity on the other. I realize the individual has the option to just pay whatever the government is demanding and sue for a refund but that is separate and apart from resolving the original wrong. Paying the lien off is in effect admitting the lien itself was valid in the first place, even if the amount was wrong, it seems to me. Does that make sense?

No, paying off the lien (actually, to be more precise, paying the tax that happens to be secured by the lien) is not an "admission" that the lien itself was valid, or that the tax was valid.

EDIT: This is somewhat avoiding your questions, Steve, but I would point out that before you ever get to the point where a federal tax lien exists, you as a taxpayer already have numerous opportunities to dispute the validity of the federal income tax, including a lawsuit against the Commissioner without first having to pay the income tax. The assessment of the income tax normally cannot occur until after such a lawsuit has been decided (or the taxpayer has elected not to file the suit). The creation of the tax lien generally cannot occur until after the assessment (but is effective retroactively to the date of assessment).

So, yes, without getting into the details: Once the federal tax lien actually is in effect (i.e., once all procedural requirements have been followed, including the actual assessment and subsequent failure to pay after "notice and demand"), it's tough for the taxpayer. At that point, taxpayer must pay the tax and THEN (if the issue has not already been decided in court) sue for refund.

[SteveSy]

In any case it seems to me using sovereign immunity in that fashion is allowing a government to commit wrongs where harm could and will be done. I could see where sovereign immunity would be used in a case where a government harms someone and then that person sues for damages. That's an after the fact suit, which would protect the government and the public purse. However suing to stop a wrong before harm is done is a valid use of the system without the government having the benefit of sovereign immunity.

Again, it seems like sovereign immunity could be used to allow wrongs to take place without repercussion. I can't imagine that being the intention and desired affect of common law. Admittedly I've never seen the validity of "sovereign immunity" in a republic system of government anyway. This seems to go far beyond the reasonable IMO.

[Famspear]

Steve: I agree to the extent that sovereign immunity can definitely be an onerous legal concept for the taxpayer. See also my "late" edit to my prior post.

[LPC]

So there is no way to sue the government to remove a tax lien? That's what it looks like. Forget the fact that the lien may or may not be valid, assume it is, it's irrelevant to my question.

Then you're asking a g**damn stupid question.

No, there is no way to remove a *valid* tax lien from property (without paying the tax, of course). Why should there be?

You think that there's a way to remove a valid mortgage lien from a property without paying the mortgage debt?

[SteveSy]

So there is no way to sue the government to remove a tax lien? That's what it looks like. Forget the fact that the lien may or may not be valid, assume it is, it's irrelevant to my question.

Then you're asking a g**damn stupid question.

No, there is no way to remove a *valid* tax lien from property (without paying the tax, of course). Why should there be?

You think that there's a way to remove a valid mortgage lien from a property without paying the mortgage debt?

Ok assume it's invalid....Jesus do you have to be such an ass? And yes, there is a way to remove a mortgage lien. You sue, doesn't mean you'll win but at least you can sue and have your case heard to validate or invalidate the lien. The court doesn't know if its valid or not until the case is heard, that's why I said it was irrelevant to my question.

[Dr. Caligari]

Ok assume it's invalid....

As far as I can tell (and I am not a lien expert), a tax lien can be invalid for 3 reasons: (1) the taxpayer doesn't owe the tax; (2) the taxpayer didn't get proper notice of the alleged tax deficiency; and (3) the lien is placed on property of someone other than the taxpayer who owes the tax.

In the first case, as Dan pointed out, the taxpayer has already received several opportunities to litigate that tax liability before the lien can be filed. In cases (2) and (3), I believe there are judicial remedies available under the Code.

[Famspear]

Again, Steve, I think your concerns fail to fully recognize how beneficial the following two things are: First, before the tax lien ever arises, the taxpayer normally has the opportunity to dispute the tax within the IRS bureaucracy (including internal IRS appeals). Second, if the taxpayer and the IRS cannot agree, the taxpayer normally ALSO has the opportunity to dispute the tax in the United States Tax Court -- again, without having to first pay the tax. Generally, only after these two safeguards have been used (or abandoned) by the taxpayer can the tax lien come into existence.

[Kimokeo]

There's always the Form 12277 as an option in dealing with liens.

[SteveSy]

Ok, I think we're missing the point of my question.

Liens filed in error - IRS has wrong person, wrong property, etc. These are bolts out of the blue, with no previous involvement with the IRS. Those can be removed by showing the IRS that they have the wrong person, or property. A bit of a hassle? Yes. But not a sturm und drang event.

Ok, but that still requires you to deal not with a legal remedy but with the IRS hoping they will admit their wrong and resolve it out of the goodness of their heart.

Liens for unpaid taxes - as noted by others, this occurs only after a number of other letters from the IRS have been received, asking for payment. Not a surprise, or bolt out of the blue, but in place because of unpaid taxes, penalties and interest. The lien is released when the tax bill is paid.

Ok, the same can be said about any lien. Maybe the company placing a lien has given the person receiving the lien many opportunities to take care of it. We don't use that same logic concerning any other individual or company. A tax lien is just a debt like any other. I don't see why the government should be accorded the benefit to escape dealing with the court system. You don't have to pay any other lien off prior to disputing it. Besides that process could take a very long time and in that time the individual could be severely financially damaged. Why should the government get this benefit. Again, if the house was seized for instance and sold I can see sovereign immunity taking affect preventing the home owner from suing for pain and suffering. To prevent any way at all to remove a potentially harmful lien prior to actual damages is a misuse of sovereign immunity IMO. The government would lose nothing by having the issue resolved in court concerning the validity of the lien. Sovereign immunity is to protect the government from damage, not to allow the government to damage unabated.

[The Observer]

The government would lose nothing by having the issue resolved in court concerning the validity of the lien. Sovereign immunity is to protect the government from damage, not to allow the government to damage unabated.

Really? How much money do you think the government would have to spend to defend itself from every crackpot TP who sees this as a way at getting back at the government for filing a notice of tax lien against them? It is a pretty cheap option for the TP to file suit and go pro se - but it isn't cheap for the government to come into court wth US attornies, and the money spent on research and documentation to show that the government had a valid assement, provided notice and demand and failed to receive payment from the taxpayer. Especially considering some of the real whacko arguments that want to contest whether the 23c document is valid.

I know that you hate government wasteful spending so you really should be thankful that there are ample low-cost opportunities for RESPONSIBLE taxpayers to contest invalid assessments or lien filings prior to the event actually happening.

[Famspear]

Ok, the same can be said about any lien. Maybe the company placing a lien has given the person receiving the lien many opportunities to take care of it. We don't use that same logic concerning any other individual or company. A tax lien is just a debt like any other. I don't see why the government should be accorded the benefit to escape dealing with the court system. You don't have to pay any other lien off prior to disputing it. Besides that process could take a very long time and in that time the individual could be severely financially damaged. Why should the government get this benefit. Again, if the house was seized for instance and sold I can see sovereign immunity taking affect preventing the home owner from suing for pain and suffering. To prevent any way at all to remove a potentially harmful lien prior to actual damages is a misuse of sovereign immunity IMO. The government would lose nothing by having the issue resolved in court concerning the validity of the lien. Sovereign immunity is to protect the government from damage, not to allow the government to damage unabated.

What exactly are you talking about here, Steve? Let's take the typical fact situation. The taxpayer has already presented his arguments about the validity of the tax deficiency itself in the Tax Court (or has had the opportunity to have it litigated there, and has declined to do so). Assume that the Tax Court has ruled that the tax is valid. The IRS has since assessed the tax, and the taxpayer has received a written "notice and demand" for the tax issued by the IRS after the assessment date. The taxpayer has failed to pay the tax within the time prescribed in the notice. The federal tax lien is now in place, effective retroactively to the date of assessment.

So, now, after the taxpayer has already lost IN COURT on the issue of the validity of the tax deficiency itself, you want the taxpayer to be able to litigate the validity of the LIEN? Please explain.

[Dr. Caligari]

Ok, I think we're missing the point of my question.


CaptainKickback wrote:

Liens filed in error - IRS has wrong person, wrong property, etc. These are bolts out of the blue, with no previous involvement with the IRS. Those can be removed by showing the IRS that they have the wrong person, or property. A bit of a hassle? Yes. But not a sturm und drang event.

Ok, but that still requires you to deal not with a legal remedy but with the IRS hoping they will admit their wrong and resolve it out of the goodness of their heart.

If the IRS puts a lien on property of the wrong person, there is a provision for judicial review, via a quiet title action. 28 U.S.C. 2409, 2410. And if the IRS is legally required to release a lien on a taxpayer (e.g., because the tax has been paid), but negligently or deliberately refuses to do so, the taxpayer can sue the Government for money damages. See IRC 7432.

[LPC]

Liens for unpaid taxes - as noted by others, this occurs only after a number of other letters from the IRS have been received, asking for payment. Not a surprise, or bolt out of the blue, but in place because of unpaid taxes, penalties and interest. The lien is released when the tax bill is paid.

Ok, the same can be said about any lien.

Wrong again. For example, a lien for Pennsylvania inheritance tax arises on the death of the owner of the property and can be enforced against a purchaser for value even though the purchaser has no notice of the lien, no tax return has been filed, and no demand for the tax has been made.

I believe that mechanic's liens (for improvements to real property) can also arise by operation of law, without any notice to anyone.

All of Sybil's beliefs are just that, beliefs, without any basis in law or fact. You might has well argue with him about the virgin birth.

[LPC]

All of Sybil's beliefs are just that, beliefs, without any basis in law or fact. You might has well argue with him about the virgin birth.

Let me add that trying to explain anything to Sybil is a complete waste of time because he doesn't want to hear what you have to say, he doesn't understand what you say, and he'll forget it all within a few hours anyway. He's basically nothing but a retarded narcissist with Korsakoff's syndrome.

[grixit]

Yes, but what a lovely shade of purple he turns when he puts his hands over his ears and stmps his feet.