Incarcerated Plaintiffs Seek Summary Judgment in EIP Suit

COLIN SCHOLL and LISA STRAWN, on behalf of themselves and all others similarly situated,
Plaintiffs,
v.
STEVEN MNUCHIN, in his official capacity as the Secretary of the U.S. Department of Treasury;
CHARLES RETTIG, in his official capacity as U.S. Commissioner of Internal Revenue;
U.S. DEPARTMENT OF THE TREASURY;
the U.S. INTERNAL REVENUE SERVICE;
and, the UNITED STATES OF AMERICA.
Defendants.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
OAKLAND DIVISION

PLAINTIFFS' NOTICE OF MOTION, MOTION, AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT

Date: November 4, 2020
Time: 9:00 a.m.
Location: Courtroom 3, 3rd Floor
Judge: The Honorable Phyllis J. Hamilton

Kelly M. Dermody (SBN 171716)
Yaman Salahi (SBN 288752)
Jallé Dafa (SBN 290637)
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
275 Battery Street, 29th Floor
San Francisco, CA 94111-3339
Telephone: 415.956.1000
Facsimile: 415.956.1008
kdermody@lchb.com
ysalahi@lchb.com
jdafa@lchb.com

Eva Paterson (SBN 67081)
Mona Tawatao (SBN 128779)
Christina Alvernaz (SBN 329768)
EQUAL JUSTICE SOCIETY
1939 Harrison St., Suite 818
Oakland, CA 94612
Telephone: 415-288-8703
Facsimile: 510-338-3030
epaterson@equaljusticesociety.org
mtawatao@equaljusticesociety.org
calvernaz@equaljusticesociety.org

[Additional counsel listed on signature page]

Attorneys for Plaintiffs and the Proposed Class

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TABLE OF CONTENTS

NOTICE OF MOTION AND MOTION

I. INTRODUCTION AND SUMMARY OF ARGUMENT

II. BACKGROUND

III. LEGAL STANDARD

IV. ARGUMENT

V. CONCLUSION

TABLE OF AUTHORITIES

CASES

Alameda Health Sys. v. Ctrs. For Medicare & Medicaid Servs., 287 F. Supp. 3d 896 (N.D. Cal. 2017)

Bresgal v. Brock, 843 F.2d 1163 (9th Cir. 1987)

Cal. Wilderness Coal. v. U.S. Dep't of Energy, 631 F.3d 1072 (9th Cir. 2011)

California v. Trump, 963 F.3d 926 (9th Cir. 2020)

City & Cnty. of S.F. v. Sessions, 372 F. Supp. 3d 928 (N.D. Cal. 2019)

Ctr. for Biological Diversity v. U.S. Bureau of Land Mgmt., 698 F.3d 1101 (9th Cir. 2012)

East Bay Sanctuary Covenant v. Trump, 932 F.3d 742 (9th Cir. 2018)

Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016)

Genuine Parts Co. v. Env't Prot. Agency, 890 F.3d 304 (D.C. Cir. 2018)

Hells Canyon Preservation Council v. U.S. Forest Serv., 593 F.3d 923 (9th Cir. 2010)

Hernandez v. Williams, Zinman & Parham PC, 829 F.3d 1068 (9th Cir. 2016)

Jimenez v. Quarterman, 555 U.S. 113 (2009)

La. Pub. Serv. Comm'n v. F.C.C., 476 U.S. 355 (1986)

Lands Council v. Powell, 395 F.3d 1019 (9th Cir. 2005)

League of Wilderness Defs. Blue Mountains Biodiversity Project v. Allen, 615 F.3d 1122 (9th Cir. 2010)

Los Angeles Lakers, Inc. v. Fed. Ins. Co., 869 F.3d 795 (9th Cir. 2017)

Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)

Norton v. S. Utah Wilderness Alliance, 542 U.S. 55 (2004)

Nw. Motorcycle Ass'n v. USDA, 18 F.3d 1468 (9th Cir. 1994)

Occidental Eng'g Co v. I.N.S. 753 F.2d 766 (9th Cir. 1985)

Ore. Natural Desert Ass'n v. U.S. Forest Serv., 465 F.3d 977 (9th Cir. 2006)

Portland Audubon Soc'y v. Endangered Species Comm., 984 F.2d 1534 (9th Cir. 1993)

Pub. Power Council v. Johnson, 674 F.2d 791 (9th Cir. 1982)

R.V. v. Mnuchin, No. 20-cv-1148, 2020 WL 3402300 (D. Md. June 19, 2020)

S.F. Herring Assoc. v. Dep't of the Interior, 946 F.3d 564 (9th Cir. 2019)

Safer Chemicals, Healthy Families v. U.S. Env't Prot. Agency, 943 F.3d 397 (9th Cir. 2019)

Serv. Emps. Int'l Union v. United States, 598 F.3d 1110 (9th Cir. 2010)

Thompson v. U.S. Dep't of Labor, 885 F.2d 551 (9th Cir. 1989)

U.S. Army Corps. of Eng'rs v. Hawkes Co., 136 S. Ct. 1807 (2016)

United States v. Mead, 533 U.S. 218 (2001)

United States v. Trident Seafoods Corp., 60 F.3d 556 (9th Cir. 1995)

Util. Air Regulatory Grp. v. E.P.A., 573 U.S. 302 (2014)

Vietnam Veterans of Am. v. Central Intelligence Agency, 811 F.3d 1068 (9th Cir. 2016)

STATUTES

26 U.S.C. § 32

26 U.S.C. § 6428

42 U.S.C. § 402

5 U.S.C. § 551(11)(A)-(B)

5 U.S.C. § 703

5 U.S.C. § 706

OTHER AUTHORITIES

166 Cong. Rec. E339 (Mar. 31, 2020)

166 Cong. Rec. S1929 (Mar. 23, 2020)

166 Cong. Rec. S2007 (Mar. 24, 2020)

IR-2020-61 (Mar. 30, 2020)

IRS, Treasury, IRS Announce Delivery of 159 Million Economic Impact Payments (June 3, 2020)

Pub. L. 116-136, 135 Stat. 335 (Mar. 27, 2020)

Pub. L. No. 110-185, 122 Stat. 613 (2008)

Treasury Inspector General for Tax Administration, Interim Results of the 2020 Filing Season: Effect of COVID-19 Shutdown on Tax Processing and Customer Service Operations and Assessment of Efforts to Implement Legislative Provisions, Ref No. 2020-46-041 (June 30, 2020)

US inmates got virus relief checks, and IRS wants them back, Associated Press (June 24, 2020)

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NOTICE OF MOTION AND MOTION

TO ALL PARTIES AND TO THEIR ATTORNEYS OF RECORD: Please take notice that Plaintiffs Colin Scholl and Lisa Strawn, on behalf of themselves and the certified Class in this case, hereby move for summary judgment. Plaintiffs respectfully request that the Court enter summary judgment in favor of Plaintiffs and the Class, including:

Plaintiffs also respectfully request that the Court confirm its order granting provisional class certification in order to enter summary judgment for the Class.

This motion is based on this Notice of Motion and Motion, the accompanying Memorandum of Law and Points and Authorities; and the papers, records, and pleadings on file in this matter.

Dated: September 29, 2020

Respectfully submitted,

By: Kelly M. Dermody

Kelly M. Dermody (SBN 171716)
Yaman Salahi (SBN 288752)
Jallé Dafa (SBN 290637)
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
275 Battery Street, 29th Floor
San Francisco, CA 94111-3339
Telephone: 415.956.1000
Facsimile: 415.956.1008
kdermody@lchb.com
ysalahi@lchb.com
jdafa@lchb.com

Eva Paterson (SBN 67081)
Mona Tawatao (SBN 128779)
Christina Alvernaz (SBN 329768)
EQUAL JUSTICE SOCIETY
1939 Harrison St., Suite 818
Oakland, CA 94612
Telephone: 415-288-8703
Facsimile: 510-338-3030
epaterson@equaljusticesociety.org
mtawatao@equaljusticesociety.org
calvernaz@equaljusticesociety.org

Lisa Holder (SBN 212628)
EQUAL JUSTICE SOCIETY
P.O. Box 65694
Los Angeles, CA 90065
Telephone: 323-683-6610
lisaholder@yahoo.com

Co-Lead Class Counsel

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I. INTRODUCTION AND SUMMARY OF ARGUMENT

Plaintiffs Colin Scholl and Lisa Strawn and other members of the Class are persons who are or were incarcerated at some point from March 27, 2020 to the present. Plaintiffs challenge Defendants' failure to issue Economic Impact Payments (“EIPs”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 26 U.S.C. § 6428, to them and the Class pursuant to their policy of withholding such payments from incarcerated persons. In entering a preliminary injunction on September 24, 2020, the Court held that Plaintiffs were likely to succeed on the merits of their claims because Defendants' policy was likely contrary to law and arbitrary and capricious. Dkt. 50. Because no further factual development is needed to enter final adjudication on the merits, Plaintiffs respectfully move now for summary judgment for them selves and the Class on their claims under the Administrative Procedure Act, 5 U.S.C. § 706(1)-(2).¹

II. BACKGROUND

A. The CARES Act

Congress passed the CARES Act on March 27, 2020, and the President signed it into law on the same day. See Pub. L. 116-136, 135 Stat. 335 (Mar. 27, 2020). Section 2201(a) of the CARES Act, codified at 26 U.S.C. Section 6428, created a mechanism to issue direct cash support called “Economic Impact Payments” (EIP) to American citizens and legal permanent residents through the federal government's tax infrastructure. Id.

How the Benefit Works: The Act creates a 2020 tax-year “credit” of $1,200 for an eligible individual, or $2,400 for eligible individuals filing a joint return, plus $500 per qualifying child. 26 U.S.C. § 6428(a). Payments are reduced by 5% of the amount of a taxpayer's income above $150,000 if a joint return, $112,500 if a head of household, and $75,000 for all others. 26 U.S.C. § 6428(c). The statute deems all eligible individuals to have made an overpayment in tax years beginning in 2019 (whether or not they made any payment at all), such that the EIP is termed a “refund.” Id. §§ 6428(f)(1)-(2). The statute directs that EIP benefits may be issued automatically through electronic deposits for people who filed 2018 or 2019 tax returns, id. § 6428(f)(3)(B), or otherwise receive Social Security or Railroad Retirement Benefits.

Eligible Individuals: The statute defines an “eligible individual” as:

any individual other than —

(1) any nonresident alien individual,

(2) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, and

(3) an estate or trust.

26 U.S.C. § 6428(d).²

Timing: Because the purpose of the EIP is emergency relief, the statute directs that “[t]he Secretary shall . . . refund or credit any overpayment attributable to this section as rapidly as possible,” no later than December 31, 2020. 26 U.S.C. § 6428(f)(3)(A).

B. Defendants' Implementation of the CARES Act

Three days after the CARES Act's passage, on March 30, 2020, the IRS issued a news release explaining that “distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people. However, some taxpayers who typically do not file returns will need to submit a simple tax return to receive the economic impact payment.” See IRS, Check IRS.gov for the latest information: No action needed by most people at this time, IR-2020-61 (Mar. 30, 2020), https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know (Salahi Decl., Ex. 1).³ It explained that for “[t]he vast majority of people,” “[t]he IRS will calculate and automatically send the economic impact payment to those eligible.” Id.

For those for whom EIP benefits cannot be issued automatically, the IRS established an online “Non-Filer” claim portal. See IRS, Economic Impact Payments, https://www.irs.gov/coronavirus/economic-impact-payments (accessed Aug. 3, 2020) (attached as Salahi Decl., Ex. 2). The portal is intended for people who “are not required to file federal income tax returns for 2018 and 2019 for any reason including: Your income is less than $12,200; You're married filing jointly and together your income is less than $24,400; You have no income.” Id.

By June 3, 2020, the IRS and Treasury Department had announced that “159 million Economic Impact Payments, worth more than $267 billion, have been distributed to Americans in two months. Payments have been sent to all eligible Americans for whom the IRS has the necessary information to make a payment.” See IRS, Treasury, IRS Announce Delivery of 159 Million Economic Impact Payments (June 3, 2020), https://home.treasury.gov/news/press-releases/sm1025 (Salahi Decl., Ex. 3). The IRS instructed that “[i]ndividuals who do not normally file taxes and have not yet received their Economic Impact Payment should use the [online] Non-Filers Tool” which “will remain available until October 15,” stating that “anyone who registers by October 15 will receive their payment by the end of the year.” Id. As explained below, contrary to its statements, the IRS has not made payments to all eligible persons and, instead, has taken steps to prevent eligible persons who are incarcerated from receiving these critical benefits.

C. Defendants' Exclusion of Incarcerated People From EIP Benefits

On May 6, 2020, more than five weeks after the passage of the CARES Act, the IRS announced that it would treat incarcerated individuals as ineligible for the EIP. The IRS stated:

Q15. Does someone who is incarcerated qualify for the Payment?

A15. No. A Payment made to someone who is incarcerated should be returned to the IRS by following the instructions about repayments. A person is incarcerated if he or she is described in one or more of clauses (i) through (v) of Section 202(x)(1)(A) of the Social Security Act (42 U.S.C. § 402 (x)(1)(A)(i) through (v)).⁴ For a Payment made with respect to a joint return where only one spouse is incarcerated, you only need to return the portion of the Payment made on account of the incarcerated spouse. This amount will be $1,200 unless adjusted gross income exceeded $150,000.

Salahi Decl., Ex. 4.⁵ On June 18, 2020, the IRS updated its internal procedures manual to reflect this change in policy. Salahi Decl., Ex. 5 at 2 (stating that “[a]n eligible individual is any individual other than . . . an incarcerated individual. . . .”).

A report by the Treasury Department's Inspector General for Tax Administration confirms that the IRS implemented the policy announced on May 6, 2020.⁶ The IRS made at least three disbursements of funds, on April 10, May 1, and May 8, 2020. Salahi Decl., Ex. 6 at 4-5. The IRS apparently included payments to incarcerated people in the April 10, 2020 disbursement. Id. When questioned on April 14, 2020, “IRS management noted that payments to these populations of individuals were allowed because the CARES Act does not prohibit them from receiving a payment. However, the IRS subsequently changed its position, noting that individuals who are prisoners . . . are not entitled to an EIP.” Id. To prevent the subsequent disbursement of EIPs to incarcerated people, “the IRS provided the [Bureau of the Fiscal Service] with a file that contained the Taxpayer Identification Numbers of prisoners . . . and requested that the BFS remove these individuals from payment files. This approach was applied to the May 1, 2020 and May 8, 2020 payment files.” Id. In addition, “IRS management informed [the IG] that on May 13, 2020, programming was implemented to discontinue calculating and sending EIPs to prisoners. . . .” Id. The IRS also “issued new guidance on May 6, 2020” concerning prisoners, as described above. Id.

According to the IG report, as of May 21, 2020, and before the IRS had taken measures to exclude incarcerated people from future payments, EIPs had been issued to 84,861 of them, totaling approximately $100 million. Salahi Decl., Ex. 6 at 5-6. In response:

[T]he IRS included steps that should be taken to return these payments as part of its Frequently Asked Questions. Individuals who received a direct deposit payment in error that was not returned to the IRS by the bank were instructed to submit a personal check or money order for the payment amount, notate the check as an EIP along with their Taxpayer Identification Number, and mail the check with a short note to the IRS at a specified address based on where the individual lives. Individuals who received a paper EIP check in error were instructed to return the voided check with a short note to the IRS at the address provided based on where the individual lives.

Id. at 6. The IRS has taken proactive steps to intercept and retrieve any payments that were previously sent to some incarcerated persons: “the IRS directed state correction departments to intercept payments to prisoners and return them.” Rebecca Boone, US inmates got virus relief checks, and IRS wants them back, Associated Press (June 24, 2020), https://apnews.com/0810bb67199c9cef34d4d39ada645a92 (Salahi Decl., Ex. 7). Pursuant to the IRS's directive, “[t]he Kansas Department of Correction alone intercepted more than $200,000 in checks by early June. Idaho and Montana combined had seized over $90,000.” Id. Other states, including Washington, Vermont, Mississippi, Pennsylvania, Arizona, California, Oregon, and Utah, intercepted stimulus payments to incarcerated persons at the IRS's behest. Id.

On September 1, 2020, in response to Plaintiffs' motion for preliminary injunction and class certification, Defendants submitted a declaration from the Chief Counsel of the Internal Revenue Service, Michael J. Desmond. Dkt. 44-1. Mr. Desmond's declaration confirms the IRS's final policy with respect to incarcerated persons. Specifically, Mr. Desmond confirmed that “individuals who were deemed to be incarcerated . . . as of April 30, 2020, were deemed not to qualify for the [CARES Act] advance payments.” Id. ¶ 7. Mr. Desmond also stated that the IRS's position with respect to advance payments does “not address whether [incarcerated] individuals are ultimately eligible to claim the credit on their 2020 tax returns.” Id. ¶ 8. Per Mr. Desmond's declaration, “the IRS currently plans to allow the CARES Act tax credit claimed on 2020 returns by otherwise eligible individuals who were only incarcerated for a portion of tax year 2020.” Id. Because Mr. Desmond's statement does not have the force of law, a ruling in Plaintiffs' favor is necessary to ensure the IRS abides by the statute.

III. LEGAL STANDARD

Pursuant to Section 706 of the Administrative Procedure Act (APA):

To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The review court shall —

(1) compel agency action unlawfully withheld or unreasonably delayed; and,

(2) hold unlawful and set aside agency action, findings, and conclusions found to be —

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

. . .

(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right. . . .

5 U.S.C. §§ 706(1)-(2).

In such cases, there are no genuine disputes of material fact and review is limited to the administrative record. Nw. Motorcycle Ass'n v. USDA, 18 F.3d 1468, 1471-72 (9th Cir. 1994). Thus, at summary judgment, “the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.” Occidental Eng'g Co v. I.N.S., 753 F.2d 766, 769 (9th Cir. 1985). See also Alameda Health Sys. v. Ctrs. For Medicare & Medicaid Servs., 287 F. Supp. 3d 896, 910-11 (N.D. Cal. 2017) (Hamilton, J.). The scope of review is generally limited to “the administrative record in existence at the time of the [agency] decision and [not some new] record that is made initially in the reviewing court.” Lands Council v. Powell, 395 F.3d 1019, 1029 (9th Cir. 2005). The administrative record for purposes of an APA claim consists of all materials considered by the agency when making the decision in question. Thompson v. U.S. Dep't of Labor, 885 F.2d 551, 555-56 (9th Cir. 1989); Portland Audubon Soc'y v. Endangered Species Comm., 984 F.2d 1534, 1548 (9th Cir. 1993). When a challenging party contends the record is incomplete, a court may enable discovery to supplement the record with materials considered by the agency decisionmakers. Pub. Power Council v. Johnson, 674 F.2d 791, 794 (9th Cir. 1982); Portland Audubon Soc'y, 984 F.2d at 1548.

Based on the declaration from the IRS's chief counsel explaining the agency's contemporaneous reasons for its decisions, Dkt. 44-1, the absence of any indication from Defendants that additional reasons or factors were considered at the time of the challenged decision, and the fact that “[P]laintiffs' challenge is a purely legal one,” Dkt. 50 at 14, Plaintiffs do not seek to supplement the record or conduct discovery for purposes of this motion.

IV. ARGUMENT

A. The CARES Act Provides Americans With Immediate Economic Assistance

As the Court has already held, Defendants have not adopted any formal interpretation of the CARES Act entitled to special judicial deference. See Dkt. 50 at 20-21; see also United States v. Mead, 533 U.S. 218, 230 (2001); United States v. Trident Seafoods Corp., 60 F.3d 556, 559 (9th Cir. 1995) (“No deference is owed when an agency has not formulated an official interpretation of its regulation, but is merely advancing a litigation position.”). Thus, the Court must proceed to interpret the relevant provisions of the CARES Act, looking to the statute's text, structure, and purpose. See Los Angeles Lakers, Inc. v. Fed. Ins. Co., 869 F.3d 795, 802 (9th Cir. 2017); see also Hernandez v. Williams, Zinman & Parham PC, 829 F.3d 1068, 1072-73 (9th Cir. 2016) (courts “must presume that [the] legislature says in a statute what it means and means in a statute what it says there,” so a court's “sole function” when “the statutory meaning is plain and unambiguous” is “to enforce it according to its terms”).

Here, the two pertinent questions are whether the CARES Act requires Defendants to issue advance refunds, and if so, whether the CARES Act authorizes Defendants to exclude incarcerated people from that program.

1. Defendants Are Required to Issue Advance Refunds As Rapidly As Possible

The CARES Act's central purpose was to provide emergency assistance to Americans affected by the pandemic. It operates through a legal fiction providing that eligible individuals “shall be treated as having” overpaid their taxes in 2019 by an amount defined by statute. 26 U.S.C. § 6428(f)(1). See R.V. v. Mnuchin, No. 20-cv-1148, 2020 WL 3402300, at *7 (D. Md. June 19, 2020) (explaining this provision “creat[es] a legal fiction that qualified individuals 'overpaid' on previously filed taxes”). The Act provides for an advance refund equal to “the amount that would have been allowed as a credit under this section for such taxable year if this section . . . had applied to such taxable year.” 26 U.S.C. § 6428(f)(2). The amount of the credit is defined by Section 6428(a).

The statute further provides that “[t]he Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible.” 26 U.S.C. § 6428(f)(3)(A) (emphasis added). As the Court has already held, “[t]he use of the word 'shall' indicates a mandatory command from Congress to the Treasury Department and the IRS to issue the advance refund and to do so rapidly.” Dkt. 50 at 22 (citing Serv. Emps. Int'l Union v. United States, 598 F.3d 1110, 1113 (9th Cir. 2010) (“The word 'shall' is ordinarily '[t]he language of command.'”); R.V., 2020 WL 3402300, at *7 (the statute “requires the government to pay the fictional overpayment, and be quick about it”). Thus, the statute does not afford the IRS discretion whether or not to issue the advance refunds.

This interpretation is also supported by the legislative history, which is replete with statements emphasizing that the purpose of the legislation was to provide rapid assistance to Americans. See, e.g., 166 Cong. Rec. S2007 (Mar. 24, 2020) (statement of Sen. McConnell) (stating that purpose of Act was to “rush financial assistance to Americans through direct checks to households from the middle class on down”) (emphasis added); 166 Cong. Rec. E339 (Mar. 31, 2020) (statement of Rep. Jayapal) (stating the CARES Act provides “relief to the vast majority of everyday people to immediately help put cash in people's pocket to pay those mounting bills”) (emphasis added); 166 Cong. Rec. S1929 (Mar. 23, 2020) (statement of Sen. Lankford) (same).

2. Defendants Are Not Authorized to Exclude Incarcerated People

The statute does not leave open the question of who is eligible to receive an advance refund. As the Court has already held, “[o]n this question, the statute is brief and to the point.” Dkt. 50 at 24. It provides that an “eligible individual” is any person who is a U.S. citizen or Legal Permanent Resident (i.e., a “nonresident alien individual”), who has not been claimed as a dependent by another taxpayer, and who is not an estate or a trust. 26 U.S.C. § 6428(d). “There is no indication that Congress left the definition of 'eligible individual' open-ended or otherwise up to the Secretary's discretion to change.'” Dkt. 50 at 24 (citing Jimenez v. Quarterman, 555 U.S. 113, 118 (2009) (“It is well established that, when the statutory language is plain, we must enforce it according to its terms.”)). See also Util. Air Regulatory Grp. v. E.P.A., 573 U.S. 302, 327 (2014) (holding that the “power of executing the laws” “does not include a power to revise clear statutory terms”); Safer Chemicals, Healthy Families v. U.S. Env't Prot. Agency, 943 F.3d 397, 425 (9th Cir. 2019) (“Where congress has explicitly provided a definition for a term, and that definition is clear, an agency must follow it.”).

Furthermore, as the Court previously indicated, this interpretation is supported by the fact that Congress knew how to exclude incarcerated people from this refund package if it wanted to. Dkt. 50 at 24. In connection with the 2008 stimulus bill, Congress excluded any income earned by persons housed at a penal institution from counting towards the minimum income requirement for a refund. See Pub. L. No. 110-185, 122 Stat. 613 (2008); 26 U.S.C. § 6428(e)(4) (2012) (defining qualifying income for purposes of a refund in reference to 26 U.S.C. § 32(c)(2)); 26 U.S.C. § 32(c)(2)(B)(iv) (“no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account”). “The fact that Congress previously devised a method to indirectly exclude incarcerated persons from the 2008 stimulus but included no such provision here indicates that Congress did not intend to exclude incarcerated persons from the definition of 'eligible individual' [under the CARES Act].” Dkt. 50 at 25.

In short, the CARES Act clearly requires the IRS to issue advance refunds to eligible individuals as rapidly as possible. It does not provide any basis to exclude people from eligibility simply because they are incarcerated.

B. Defendants Have Unlawfully Withheld or Unreasonably Delayed Stimulus Payments Belonging to Plaintiffs and the Class (5 U.S.C. Section 706(1))

Section 706(1) of the APA provides that a court “shall compel agency action unlawfully withheld or unreasonably delayed.” 5 U.S.C. § 706(1); see Compl. ¶¶ 40-43. “A court can compel agency action under this section only if there is 'a specific, unequivocal command' placed on the agency to take a 'discrete agency action,' and the agency has failed to take that action.” Vietnam Veterans of Am. v. Central Intelligence Agency, 811 F.3d 1068, 1075 (9th Cir. 2016).

The CARES Act provides such a command. Congress gave the Secretary zero discretion in deciding whether to issue a payment to an eligible person. The statute unequivocally commands that “[t]he Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible.” 26 U.S.C. § 6428(f)(3)(A) (emphasis added). The delivery of this financial assistance constitutes “discrete agency action.” See Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 62 (2004) (“discrete agency actions” include, inter alia, an “agency rule, order, license, sanction [or] relief”); 5 U.S.C. § 551(11)(A)-(B) (“relief” includes the “grant of money” and the “recognition of a claim [or] right”).

Defendants have “both a legal duty to perform a discrete agency action [i.e., issue stimulus payments to eligible persons] and [have] fail[ed] to perform that action.” Vietnam Veterans, 811 F.3d at 1079. Defendants have thus “ignored a specific legislative command.” Hells Canyon Preservation Council v. U.S. Forest Serv., 593 F.3d 923, 932 (9th Cir. 2010).

C. Defendants' Policy Is Contrary to Law and Exceeds Statutory Authority (5 U.S.C. § 706(2))

Notwithstanding the unambiguous text of the statute, Defendants on May 6, 2020 announced their policy that incarcerated persons were ineligible for a stimulus payment, and have refused to issue payments to such persons. Salahi Decl., Exs. 4 & 6; see Section II.C, supra.

Defendants subsequently submitted a declaration from the IRS's chief counsel confirming the policy: “Specifically, individuals who were deemed to be incarcerated . . . as of April 30, 2020, were deemed not to qualify for the advance payments.” Dkt. 44-1 ¶ 7.

1. The IRS's Policy Is Final Agency Action

The IRS's policy of excluding incarcerated people from advance refund payments constitutes final agency action, as the Court has already held. Dkt. 50 at 14-15. Specifically, “[s]ince the advance refund is a grant of money, the denial of the advance refund is an agency action.” Dkt. 50 at 14. See 5 U.S.C. § 551(13) (defining “agency action” as “the whole or a part of an agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act”); id.§ 551(11)(A) (defining relief in part as “the whole or part of an agency grant of money. . . .”).

The denial of the advance refunds to Plaintiffs and the Class is also final, not preliminary. Agency action is final when (1) it “mark[s] the consummation of the agency's decision-making process,” i.e., it is not “of a merely tentative or interlocutory nature,” and (2) is “one by which rights or obligations have been determined, or from which legal consequences will flow.” S.F. Herring Assoc. v. Dep't of the Interior, 946 F.3d 564, 577 (9th Cir. 2019) (quoting U.S. Army Corps. of Eng'rs v. Hawkes Co., 136 S. Ct. 1807, 1813 (2016)). This analysis is “pragmatic.” Id. Hawkes, 136 S. Ct. at 1815. Both conditions are met here.

The Policy Is Not Tentative. Defendants' policy is not “merely tentative or interlocutory.” S.F. Herring, 946 F.3d at 577. The Court previously observed three reasons supporting the conclusion that the policy was final.

First, “[a]fter initially disbursing EIPs to incarcerated persons, the IRS reversed its decision and, as described in its FAQs, unequivocally took the position that someone who is incarcerated does not qualify for the EIP and should return any prior payments.” Dkt. 50 at 15. See also Salahi Decl., Ex. 4.

Second, the IRS's chief counsel submitted a declaration confirming that the FAQ addresses the issue of whether incarcerated individuals may receive advance payments, and confirmed that the IRS decided that anyone deemed incarcerated as of April 30, 2020 would not receive a payment. Dkt. 44-1 ¶¶ 7-8. These statements “indicate[ ] that the IRS's decision regarding the advance refund is final.” Dkt. 50 at 15.

Third, the Court cited the IRS's internal manual, which codified and implemented this policy, as further support for the conclusion “that the IRS considers the issue of advance refund payments to incarcerated persons to be settled.” Dkt. 50 at 15. See also Salahi Decl., Ex. 5 at 2.

Furthermore, Defendants operationalized their policy by asking state correctional facilities to intercept and return any refunds that had been inadvertently sent to incarcerated people, Salahi Decl., Ex. 7, and took preventative action to ensure no checks would be sent to incarcerated people in disbursements issued in early May 2020 or thereafter by cross-referencing the payment data files with a list of known incarcerated people and implementing programming to exclude them. Salahi Decl., Ex. 6 at 5.

This behavior “does not suggest [Defendants are] still in the middle of trying to figure out [their position] on whether [incarcerated persons are eligible for CARES Act relief], and that this action somehow prematurely inserts the counts into the mix.” S.F. Herring, 946 F.3d at 578.

The Policy Determines Class Members' Rights. Defendants' policy is also “one by which rights or obligations have been determined, or from which legal consequences will flow.” S.F. Herring, 946 F.3d at 577. Plaintiffs were entitled to advance refunds, but did not receive them. Scholl Decl. ¶ 2 (Dkt. 13); Strawn Decl. ¶ 2 (Dkt. 14). Further, the IRS has made clear it will not issue payments to incarcerated people before the end of the year. Dkt. 44-1 ¶ 7. And, “[m]ore broadly, the impact of the IRS's decision is evidenced by the fact that the IRS initially issued EIPs to incarcerated persons and then, because of its decision, intercepted payments or ordered recipients to return payments.” Dkt. 50 at 16 (citing Salahi Decl., Ex. 6 at 5).

These factors demonstrate that the IRS's policy is not tentative or non-binding, but rather is final and ripe for review by the Court. See also Ore. Natural Desert Ass'n v. U.S. Forest Serv., 465 F.3d 977, 985-86 (9th Cir. 2006) (final agency action found where agency “arrived at a definitive position” and “put that decision into effect”).

2. The Policy Is Contrary to Law and Exceeds Statutory Authority

Under the APA, the Court “shall” “hold unlawful and set aside agency action . . . found to be — (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; [or] (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A), (C).

As explained above, see Section IV.A, and as the Court has already held, the CARES Act “mandates distribution of the advance refund to eligible individuals,” and “[i]ncarcerated persons who otherwise qualify for an advance refund are not excluded as an 'eligible individual.'” Dkt. 50 at 25. This conclusion is also bolstered by the fact that Defendants initially took the position that incarcerated individuals were eligible for advance payments and actually issued nearly 85,000 payments to them. See Salahi Decl., Ex. 6 at 5 (when the Treasury Inspector General for Tax Administration questioned IRS management about this decision, the IRS “noted that payments to these populations were allowed because the CARES Act does not prohibit them from receiving a payment”). Subsequently, the IRS abruptly changed its mind without explanation. This “shifting interpretation demonstrates that the IRS 'went well beyond the bounds of its statutory authority.'” Dkt. 50 at 25 (quoting Utility Air Reg. Grp., 573 U.S. at 326).

The Secretary's adoption of eligibility requirements beyond those provided by the CARES Act effectively re-writes the statutory definition of “eligible individual,” violating core separation of powers principles. See Util. Air Regulatory Grp., 573 U.S. at 327-28 (“The power of executing the laws . . . does not include a power to revise clear statutory terms,” because of the “core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”); Safer Chemicals, Healthy Families, 943 F.3d at 425 (holding EPA's re-definition of statutory term was unlawful because “[w]here Congress has explicitly provided a definition for a term, and that definition is clear, an agency must follow it”); East Bay Sanctuary Covenant v. Trump, 932 F.3d 742, 774 (9th Cir. 2018) (upholding injunction enjoining executive order and agency rule suspending entry of certain asylees because they “do[ ] indirectly what the Executive cannot do directly: amend the [Congressional statute]”). See also La. Pub. Serv. Comm'n v. F.C.C., 476 U.S. 355, 374 (1986) (“an agency literally has no power to act . . . unless and until Congress confers power upon it”); California v. Trump, 963 F.3d 926, 947-49 (9th Cir. 2020) (Department of Defense lacked statutory authority to transfer funds to other agencies for border wall construction); City & Cnty. of S.F. v. Sessions, 372 F. Supp. 3d 928, 943 (N.D. Cal. 2019) (agency lacked statutory authority to impose additional conditions on federal grants).

Accordingly, Defendants' policy is contrary to law.

3. The Policy Is Also Arbitrary and Capricious

Defendants' policy is arbitrary and capricious for several other reasons.

First, Defendants violated the “basic procedural requirement” that “an agency must give adequate reasons for its decisions,” and when it “has failed to provide even that minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016). When it announced its position, as this Court observed, the IRS “put forward virtually no public explanation concerning its decision to withhold payments to incarcerated persons.” Dkt. 50 at 27. Indeed, its spokesman was unable to explain it either, telling reporters, “I can't give you the legal basis. All I can tell you is this is the language the Treasury and ourselves have been using.” Salahi Decl., Ex. 7 at 3.

Second, Defendants' policy is arbitrary and capricious because it “relie[s] on factors Congress did not intend it to consider. . . .” League of Wilderness Defs. Blue Mountains Biodiversity Project v. Allen, 615 F.3d 1122, 1130 (9th Cir. 2010) (quotation omitted). Specifically, in deciding who was an “eligible individual” for an advance refund payment, Defendants considered whether individuals were incarcerated, a criteria that Congress itself did not adopt or intend to be material. See Section IV.A, supra.

Third, to the extent that Defendants now claim the policy was adopted as an anti-fraud measure, that explanation is not persuasive for at least two reasons. One, it was stated for the first time in a post-hoc declaration filed in this lawsuit, and unaccompanied by contemporaneous evidence of the agency's decision-making process at the time it adopted the policy in question. Lands Council v. Powell, 395 F.3d 1019, 1029 (9th Cir. 2005) (review of agency action “focuses on the administrative record in existence at the time of the decision and does not encompass any part of the record that is made initially in the reviewing court” (quotation omitted and emphasis added)); Ctr. for Biological Diversity v. U.S. Bureau of Land Mgmt., 698 F.3d 1101, 1124 (9th Cir. 2012) (reviewing court “cannot gloss over the absence of a cogent explanation by the agency by relying on . . . post hoc rationalizations” (quotation omitted)).

Further, as the Court previously observed, “defendants have not logically connected the identified burden (fraud) and their remedy (no payments to incarcerated persons).” Dkt. 50 at 35. Indeed, the IRS has confirmed less than 7,000 cases of fraud in 2018 associated with incarcerated individuals' social security numbers, a miniscule percentage of the incarcerated population overall. Dkt. 44-1 ¶ 6. Rather than implement a mechanism that would isolate only individuals who had been specifically flagged by the IRS for potential fraud concerns or additional fraud screening, the IRS instead adopted a collective punishment approach, disqualifying hundreds of thousands of incarcerated people for whom the IRS had no specific reason to suspect fraud. This mis-match between the agency's interest in preventing fraud and the action taken does not demonstrate a “rational connection between the facts found and the choice made.” Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Genuine Parts Co. v. Env't Prot. Agency, 890 F.3d 304, 311-12 (D.C. Cir. 2018) (agency action is arbitrary and capricious where the agency does not “articulate a rational explanation for its actions” (quotation omitted)).

For the reasons above, Defendants' policy is also arbitrary and capricious under the APA.

D. The Court Should Enter Summary Judgment for Plaintiffs and Grant Their Requests for Declaratory and Injunctive Relief

The APA authorizes courts reviewing agency action to issue declaratory and injunctive relief. See 5 U.S.C. § 703. See also 5 U.S.C. § 706(1) (providing that a reviewing court “shall . . . compel agency action unlawfully withheld”); Vietnam Veterans of Am., 811 F.3d at 1079-80 (affirming injunction under 5 U.S.C. § 706(1) compelling agency to perform actions required by statute); 5 U.S.C. § 706(2) (court must “hold unlawful” and “set aside” agency action that is arbitrary and capricious or contrary to law). Here, Plaintiffs request both forms of relief on behalf of themselves and the Class.⁷

Specifically, Plaintiffs request a judicial declaration that (1) Section 6428 does not authorize Defendants to withhold advance refunds or credits from Class Members solely because they are or were incarcerated; (2) Defendants unlawfully withheld or unreasonably delayed delivery of advance refunds to Class Members pursuant to 5 U.S.C. § 706(1); (3) Defendants' policy of withholding advance refunds or credits from Class Members because they are or were incarcerated is contrary to law and in excess of statutory authority under 5 U.S.C. § 706(2); and (4) Defendants' policy is also arbitrary and capricious under 5 U.S.C. § 706(2).

Plaintiffs also request that the Court convert its preliminary injunction into a permanent injunction which: (1) enjoins Defendants from withholding advance refunds or credits under 26 U.S.C. § 6428 from any Class Member, including Plaintiffs, on the sole basis that they are or were incarcerated, because the statute does not condition eligibility on incarcerated status, see, e.g., Bresgal v. Brock, 843 F.2d 1163, 1171-72 (9th Cir. 1987) (affirming permanent injunction “enjoin[ing]” agency “to cease refusing to enforce” statute); (2) invalidates the IRS's policy of withholding refunds or credits from people who are or were incarcerated, see Cal. Wilderness Coal. v. U.S. Dep't of Energy, 631 F.3d 1072, 1095 (9th Cir. 2011) (“When a court determines that an agency's action failed to follow Congress's clear mandate, the appropriate remedy is to vacate that action.”); (2) orders Defendants to re-consider the eligibility of Class Members for advance refunds based on information available in the IRS's records, specifically, 2018 or 2019 tax returns or Forms SSA-1099 (Social Security Benefit Statements) and Form RRB-1099 (Social Security Equivalent Benefit Statement), but from whom benefits have thus far been withheld, intercepted, or returned on the sole basis of their incarcerated status within 30 days; and (3) orders Defendants to re-consider any claim filed through the “Non-Filer” portal or otherwise that was previously denied solely on the basis of the claimant's incarcerated status.

V. CONCLUSION

For the reasons set forth above, Plaintiffs respectfully request that the Court grant summary judgment in favor of Plaintiffs and the Class.

Dated: September 29, 2020

Respectfully submitted,

By: Kelly M. Dermody

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[PROPOSED] ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

This matter comes before the Court on Plaintiffs' Motion for Summary Judgment. The Court, having considered the papers filed by the parties as well as the arguments of counsel, hereby GRANTS Plaintiffs' motion.

Accordingly, the Court ORDERS as follows:

1. The Court provisionally certified a Class on September 24, 2020 and now confirms certification of the same Class for purposes of final judgment:

All United States citizens and legal permanent residents who:

(a) are or were incarcerated (i.e., confined in a jail, prison, or other penal institution or correctional facility pursuant to their conviction of a criminal offense) in the United States, or have been held to have violated a condition of parole or probation imposed under federal or state law, at any time from March 27, 2020 to the present;

(b) filed a tax return in 2018 or 2019, or were exempt from a filing obligation because they earned an income below $12,200 (or $24,400 if filing jointly) in the respective tax year;

(c) were not claimed as a dependent on another person's tax return; and

(d) filed their taxes with a valid Social Security Number, and, if they claimed qualifying children or filed jointly with another person, those individuals also held a valid Social Security Number.

Excluded from the Class are estates and trusts; Defendants; the officers, directors, or employees of any Defendant; and, any judicial officer presiding over this action and the members of his/her immediate family and judicial staff.

2. The Court confirms its appointment of Colin Scholl and Lisa Strawn as representatives of the Class, and its appointment of Kelly M. Dermody of Lieff, Cabraser, Heimann & Bernstein LLP and Eva J. Paterson of the Equal Justice Society as Co-Lead Class Counsel for the same reasons previously stated, see Dkt. 50.

3. The Court enters the following declaratory judgment:

4. The Court hereby adopts its preliminary injunction as a permanent injunction, as follows:

IT IS SO ORDERED.

Dated:

The Honorable Phyllis J. Hamilton