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DOJ Opposes Speedy Hearing in Conservation Easement Notice Case

MAR. 22, 2022

GBX Associates LLC v. United States

DATED MAR. 22, 2022
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GBX Associates LLC v. United States

GBX ASSOCIATES LLC,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

DEFENDANT UNITED STATES OF AMERICA'S OPPOSITION TO PLAINTIFF'S MOTION FOR SPEEDY HEARING AND EXPEDITED DECLARATORY JUDGMENT

The defendant United States of America opposes plaintiff GBX Associates LLC's Motion for Speedy Hearing and Expedited Declaratory Judgment (Doc. 7). The plaintiff cites no authority to shorten the time for the United States to answer or otherwise respond to the Complaint, and it asks this Court to commit to determining final and complete relief in a curtailed proceeding without fairly appraising the needs of the case. With the United States having not even been served yet, it is far too early to force a scheduling order, let alone the dramatically shortened one unilaterally offered by plaintiff.

I. Background

In the Complaint, plaintiff alleges that the United States violated the Administrative Procedure Act (“APA”) in promulgating IRS Notice 2017-10 (“the Notice”). The Notice identified certain syndicated conservation easement transactions as being subject to information-reporting requirements and thus imposed reporting and recordkeeping obligations on taxpayers and material advisors to such transactions. See 26 U.S.C. §§ 6111, 6112. Plaintiff alleges that it is a material advisor to transactions of the type described in the Notice. Complaint ¶ 39. The Complaint further alleges that the costs of complying with its reporting and recordkeeping obligations are causing plaintiff ongoing harm. Complaint ¶ 64. Plaintiff “seeks entry of a judgment declaring that Notice 2017-10 is unlawful and an injunction enjoining its enforcement.” Id. ¶ 5.

The instant motion asks the Court to order expedited briefing on plaintiff's APA claim and suggests that this can be done “pursuant to Rule 57 of the Federal Rules of Civil Procedure.” Doc. 7 at 1. That Rule says as follows:

These rules govern the procedure for obtaining a declaratory judgment under 28 U.S.C. § 2201. Rules 38 and 39 govern a demand for a jury trial. The existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate. The court may order a speedy hearing of a declaratory-judgment action.

II. Argument

The motion should be denied for three reasons. First, it is premature because the government's time to answer has not yet run. Second, the court should not fast track this case and eliminate any chance for discovery based on plaintiff's unilateral narrowing of the issues. Third, Rule 57 cannot be used to expedite plaintiff's prayer for final injunctive relief.

A. Plaintiff's Rule 57 Motion Cannot Shorten the United States' Time to Respond to the Complaint

Through its Rule 57 motion, plaintiff improperly “seeks an expedited deadline for Defendants to file an Answer.” Doc. 7 at 3. Courts have uniformly held that this is not a permitted use of Rule 57 because it is “[i]mplicit” in that rule “that prior to such order for a speedy hearing, the matter in issue will have been joined by the filing of a responsive pleading.” Drinan v. Nixon, 364 F. Supp. 853, 854 (D. Mass. 1973), aff'd, 502 F.2d 1158 (1st Cir. 1973); see also Gardner v. Newsom, 2020 WL 4808696 at *1 (E.D. Cal. July 10, 2020), report and recommendation adopted 2020 WL 4795290 (Aug. 18, 2020) (“Plaintiff's 'Rule 57 Motion' for a declaratory ruling or judgment is premature because Defendants have not yet filed an answer and the time to do so has not yet expired.”); Perry v. Correct Care Solutions, LLC, 2017 WL 11519168 at *3 (E.D. Va. June 2, 2017) (denying motion for speedy hearing as premature); Redmond v. Alexander, 988 B.R. 557, 559 (D. Kan. 1989) (finding “no authority whereby the court could find appropriate a request for declaratory relief contained in a pre-answer motion”); 718 Fifth Avenue Corp. v. United States, 7 C.I.T. 6, 1984 WL 3660 (Court of International Trade 1984) (“The court can order a speedy hearing, but the rule in no way authorizes short circuiting the pleading process. The rules require the court to permit defendant to answer.”).

In this case, the summons and complaint were placed in the mail by the clerk on March 17, 2022. See unnumbered docket entry for “Service by Clerk” on 3/17/22. There is no indication yet that they have been served. Rule 12(a) allows the government 60 days after service of process on the United States Attorney in which to file its response to the Complaint. Fed. R. Civ. P. 12(a)(2). While it is of course true that “district courts have the inherent authority to manage their dockets and courtrooms with a view toward the efficient and expedient resolution of cases, Dietz v. Bouldin, 579 U.S. 40, 47 (2016), the text of Rule 12 states that the government's 60-day response time cannot be shortened “[u]nless another time is specified by this rule or a federal statute.” Id.; see also Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 17 (3d Cir. 1985). That means that the United States cannot be required to file a responsive pleading until late May, at the earliest. Accordingly, the plaintiff's proposed schedule, requiring an answer by April 15, 2022, should be rejected outright.

B. Plaintiff's Proposed Schedule Is Unrealistic and Ignores the Potential Need for Discovery

While plaintiff insists that “[t]here are no other facts necessary to decide the issue” presented by this case, Doc. 7 at 5, and that expedited briefing on its claim for declaratory relief is therefore reasonable, the United States urges the Court not to accept plaintiff's conclusory assertion at face value. The United States is still reviewing the Complaint and has not yet determined what the facts or issues in this case are, much less what a feasible dispositive motion briefing schedule would look like. The appropriate process, including the need for any discovery and a reasonable dispositive briefing schedule, all will become clearer after the United States has been afforded its full 60 days.

One omission from plaintiff's proposed schedule is any discovery whatsoever. Although it is possible that no discovery will be needed, it is presently far too early to discard all factual discovery, before the complaint is served and the United States is able to assess the issues and potential defenses.1 Even plaintiff's own cited cases, which purport to grant an expedited procedure on narrow or straightforward declaratory issues, still allow for discovery prior to dispositive motion briefing. In one of plaintiff's cited cases, the court in June asked the parties for a proposed schedule and eventually set discovery to conclude by October and a trial for January of the next year. Tri-State Generation & Transmission Ass'n Inc. v. BNSF Ry. Co., No. CV 08-272-PHX-MHM, 2008 WL 2465407, at *7 (D. Ariz. June 17, 2008). And in another of plaintiff's cited cases, the court granted 60 days for factual discovery before dispositive motions on the declaratory judgment issue. Klungvedt v. Unum Grp., No. 2:12-CV-00651 JWS. 2012 WL 2368623 at *3 (D. Ariz. June 21, 2012).

The plaintiff justifies its extraordinarily foreshortened procedure by characterizing this as an open-and-shut case, but that is not something that the Court should immediately accept either. In fact, the issues and results before this Court may not be preordained by the Sixth Circuit's decision in Mann Construction, Inc. v. United States, No. 21-1500, 2022 WL 619822 (6th Cir. Mar. 3, 2022). That ruling from earlier this month, concerning a different (albeit similar) IRS notice, is not final and may still be appealed further, following consultation among and between the IRS and various Department of Justice components, and pursuant to an as-yet unmade decision by the Solicitor General's office. Moreover, by the time of the latest appeal, Mann Construction was only a tax refund suit seeking a money judgment; the Sixth Circuit's decision therefore does not directly speak to the expansive declaratory and injunctive relief plaintiff seeks here. Consequently, some discovery and briefing on issues that were not before the Sixth Circuit in Mann Construction may be necessary for this Court to determine the issues here and, if an APA violation is determined, to craft an appropriate remedy.

Even if the Court were to ultimately determine that the IRS's promulgation of the Notice violated the APA, that determination will not automatically mean that the Notice must be enjoined. In some cases, courts have remanded a rule to the issuing agency in order to correct an APA violation without vacating the rule in the interim, based on factual matters including “the disruptive consequences” of a broad injunction. See Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146 (D.C. Cir. 1993); see also Ackerman Brothers Farms LLC v. U.S. Dept. of Agriculture, 2021 WL 6133910 at *5 (E.D. Mich. Dec. 29, 2021) (noting that “the Sixth Circuit has not expressly approved of remand without vacatur in the APA context” but that “the great weight of authority favors recognizing the remedy”). The potential need to determine the appropriate remedy thus also weighs against plaintiff's proposed schedule.

C. Rule 57 Cannot Be Used to Expedite Injunctive Relief

“By its own terms, this Rule [57] applies only to claims of declaratory judgment brought under Title 28 U.S.C. § 2201.” Jackson v. United States, 2006 WL 8448557 at *1 (M.D. Fla. Nov. 3, 2006). Plaintiff contends that an expedited ruling on its claim under § 2201 “will dispose of the sole issue in this case, serve the interests of judicial economy and protect Plaintiff from ongoing irreparable harm,” Doc. 7 at 5, but this is not so. A claim for declaratory relief is not “the sole issue in this case” where the plaintiff seeks not only a declaration that the Notice is unlawful but also an injunction against its enforcement. See Doc. 1. Plaintiff's request for an injunction does not come within § 2201 and cannot be determined on expedited briefing and a “speedy hearing” pursuant to Rule 57. To reiterate, plaintiff has not been clear about the substance or scope of any such injunction, and that is a separate issue from whether the Court should enter a declaratory judgment that the APA was violated.

III. Conclusion

For the foregoing reasons, plaintiff's Rule 57 motion should be denied. After the United States files its response to the Complaint within the allotted 60-day period, the parties can meet and confer regarding scheduling in the normal course.

Respectfully Submitted,

DAVID A. HUBBERT
Deputy Assistant Attorney General
U.S. Department of Justice,
Tax Division

Edward J. Murphy
EDWARD J. MURPHY
RYAN D. GALISEWSKI
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 55
Washington, D.C. 20044
(202) 307-6064 / Fax: (202) 514-5238
Email: Edward.J.Murphy@usdoj.gov

FOOTNOTES

1As just one example, plaintiff itself raises the issue of whether Notice 2017-10 even applies to plaintiff, raising a potential standing issue. Complaint, ¶¶ 39-40.

END FOOTNOTES

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