Court Dismisses Challenge to Bank's Summons Response

This is yet another in a long line of lawsuits surrounding plaintiff Robert Lund's federal income tax deficiencies. Defendant JPMorgan Chase Bank, N.A.,¹ moves to dismiss plaintiff's complaint. In addition, defendant seeks judicial notice of certain publicly filed documents. For the reasons set forth below, defendant's motions are granted and this case dismissed.

At some unspecified time thereafter, defendant furnished documents pursuant to the Summons. On February 19, 2014, plaintiff commenced a lawsuit in Linn County Circuit Court, alleging violations of the Oregon constitution, breach of contract, and deprivation of his Fourth and Fifth Amendment rights, and requesting $3,000,000 in damages.

On March 19, 2014, defendant removed plaintiff's complaint to this Court on the basis of federal question and diversity jurisdiction. On May 8, 2014, this Court denied plaintiff's motion for remand.

On May 19, 2014, defendant moved to dismiss plaintiff's complaint pursuant to Fed. R. Civ. P. 12(b)(6).³ On June 16, 2014, plaintiff filed an "objection to the Request for Judicial Notice of Documents," in which he raises substantive arguments and again requests that the Court remand this case back to state court.

Judicial notice may be taken at any stage in the proceedings. Fed. R. Evid. 201(d). The "court may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). Facts contained in public records are generally considered appropriate subjects for judicial notice. Santa Monica Food Not Bombs v. City of Santa Monica, 450 F.3d 1022, 1025 n.2 (9th Cir. 2006). Nevertheless, the court may not take judicial notice of documents, regardless of whether they meet the requirements of Fed. R. Civ. P. 201(b), that are unrelated to the matter at issue. Hart v. Parks, 450 F.3d 1059, 1063 n.2 (9th Cir. 2006).

The Court finds the parties' previous lawsuit concerning the Summons relevant to this dispute. See United States v. Alvarez, 358 F.3d 1194, 1205 (9th Cir.), cert. denied, 543 U.S. 887 (2004) (n[t]rial judges have wide discretion in determining whether evidence is relevant") (citing Fed. R. Evid. 401). Indeed, plaintiff alleges that defendant wrongfully produced documents pursuant to the Summons despite the motion to quash he filed in Lund I, thereby incorporating those proceedings by reference into his complaint. Compl. ¶¶ 14-17, 20-27. Further, although the parties disagree as to their legal effect, the facts of that case are undisputed. Lastly, it is well-established that the ncourt may take judicial notice of court records in another case" because they are capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. United States v. Howard, 381 F.3d 873, 876 n.1 (9th Cir. 2004). As such, defendant's motion for judicial notice is granted.

Even where the taxpayer files a petition to quash, the summoned third-party must nonetheless "proceed to assemble the records requested, or such portion thereof as the Secretary may prescribe, and shall be prepared to produce the records pursuant to the summons on the day on which the records are to be examined." 26 U.S.C. § 7609(i)(1). To defeat a motion to quash, the IRS may move to compel compliance with the summons. 26 U.S.C. § 7609(b)(2)(A); see also 26 U.S.C. § 7609(d)(2). Alternatively, the IRS may seek dismissal and rely on third-party acquiescence to effectuate the summons; once the motion to dismiss is filed, "the burden shifts immediately to the [taxpayer] to establish a valid defense to the summons." Cook v. United States, 2002 WL 221084, *3 (D.Or. Jan. 8, 2002) (citation and internal quotations omitted).

During Lund I, plaintiff followed the procedures articulated in 26 U.S.C. § 7609(b), after which the IRS moved to dismiss his petition. Plaintiff, however, voluntarily withdrew his motion to quash before the Court ruled on the propriety of the Summons. While not dispositive, the Court notes that the Summons here complied with the Powell factors and was therefore sufficient to establish a prima facie case, which plaintiff failed to rebut. See Lund I, 6:09-cv-06192 (docs. 18-23); see also Lund II, 2011 WL 6963106 at *1-3 (describing the parties' respective burdens in regard to the enforcement of a disputed summons). Regardless, both prior to and during the pendency of Lund I, defendant was required to prepare the requested documents for production. Because Lund I was dismissed before a decision on the merits, the Summons's validity -- and defendant's obligation to act in accordance therewith -- remained intact.

Thus, the filing of a motion to quash does not render a summons unenforceable or otherwise "legally excuse" a third-party from producing the requested documents. Pl.'s Resp. to Mots. 4. Rather, a summons is presumptively valid unless and until the Court issues a judgment finding it deficient. See Cook, 2002 WL 221084 at *3-4. In other words, although defendant's obligation to produce documents may have been tolled by the filing of plaintiff's petition to quash, it was not voided. Therefore, to the extent plaintiff contends that defendant was not permitted to respond to the Summons because the Court never issued as affirmative order to that effect, or because the production date expired during the pendency of Lund I, his arguments are unavailing.

Plaintiff's reliance on 26 U.S.C. § 7604(a) and 26 U.S.C. § 7402(b) -- in support of the proposition that, absent a court order, defendant was prohibited from responding to the Summons -- is equally unpersuasive. See Pl.'s Resp. to Mots. 2-4. These statutory provisions do not aid plaintiff; they merely provide that the district court, "for the district in which such [summoned] person resides or is found," shall have jurisdiction to compel production in response to a summons. 26 U.S.C. §§ 7402(b), 7604(a). In fact, as defendant notes, "the subsection immediately preceding § 7402(b) provides that the IRS may seek to hold any person who fails or refuses to comply with a summons in contempt, again confirming that [defendant] was obligated to produce once the petition to quash was dismissed." Def.'s Reply to Mot. Dismiss 6 n.2 (citing 26 U.S.C. § 7402(a)).

Essentially, through this lawsuit, plaintiff seeks to revive his petition contesting the Summons. Yet plaintiff has not named or served notice on the IRS, as required by 26 U.S.C. § 7609, and the twenty-day time limit for contesting the Summons has long expired. See Ponsford v. United States, 771 F.2d 1305, 1309 (9th Cir. 1985) (dismissal required where taxpayer failed to file a motion to quash within the 20-day time period). More importantly, plaintiff cannot obtain an advantage in these proceedings by taking positions that contravene those asserted in Lund I. See Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC, 692 F.3d 983, 993 (9th Cir. 2012) (judicial estoppel "is an equitable doctrine invoked not only to prevent a party from gaining an advantage by taking inconsistent positions, but also because of general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings, and to protect against a litigant playing fast and loose with the courts") (citations and internal quotations omitted); see also New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001) (outlining the elements of judicial estoppel). Plaintiff previously voluntarily withdrew his motion to quash the Summons, thereby impliedly conceding its validity, whereas he now argues that defendant's compliance therewith was wrongful. Furthermore, in dismissing Lund I, the Court relied on and adopted plaintiff's decision to withdraw his complaint. Accepting plaintiff's inconsistent position in these proceedings would therefore place the parties in an unfair context.

In the interest of protecting the orderly administration of justice and dignity of judicial proceedings, the Court finds that judicial estoppel attaches to bar the present action. Any other result would deprive the IRS of its investigatory powers and run afoul of the process set forth in 26 U.S.C. § 7609. A taxpayer could simply file a motion to quash, no matter how frivolous, and withdraw that motion before a ruling on the merits to prevent responsive production. Consequently, the IRS would be required to compel production of any summons in order to obtain the sought after information, because no third-party would subject itself to a subsequent legal challenge like the $3,000,000 claim at issue here. Congress simply could not have intended that 26 U.S.C. § 7609 be interpreted in this incongruous manner. For these reasons, defendant's motion to dismiss is granted.

Second, "summonses issued by the IRS seeking documents in the possession of third-parties do not implicate [a taxpayer's] rights under the Fourth Amendment." Lewis v. United States, 2012 WL 1197784, *8 (E.D.Cal. Apr. 10), adopted by 2012 WL 3886885 (E.D.Cal. May 4, 2012) (collecting cases); see also Lund II, 2011 WL 6963106 at *3 (a summons "is not a per se violation of the Fourth Amendment [and one] that complies with the Powell requirements satisfies the Fourth Amendment") (citations omitted). Moreover, IRS "summonses do not violate [a taxpayer's] Fifth Amendment right against self-incrimination or to due process." Mayley v. United States, 2011 WL 5239725, *7 (D.S.C. Oct. 13), adopted by 2011 WL 5314214 (D.S.C. Nov. 1, 2011) (citations omitted); see also Lund II, 2011 WL 6963106 at *3-4 ("the fifth amendment privilege may not itself be used as a method of evading payment of lawful taxes") (citations and internal quotations omitted).

Finally, regarding his remaining breach of contract claim, plaintiff only states that defendant violated "[t]he very clearly spelled out contractual obligations written in the contract between the two parties to this case." Compl. ¶ 11. As such, plaintiff neither attaches the alleged contract to his complaint nor pleads facts adequately describing its terms. As a result, his breach of contract claim is comprised of legal conclusions cast in the form of factual allegations, which are.not entitled to the presumption of truth. See Hogan v. N.W. Trust Servs., Inc., 2010 WL 1872945, *4 (D.Or. May 7, 2010), aff'd, 441 Fed.Appx. 490 (9th Cir. 2011) ("a court is free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations"). In sum, because there are no well-plead factual allegations in the complaint indicating that defendant's alleged production of documents pursuant to the Summons was improper, defendant's motion to dismiss is granted.

IT IS SO ORDERED.

DATED this 26th of June 2014.

² As acting though the Internal Revenue Service ("IRS").

³ Defendant also seeks dismissal under Fed. R. Civ. P. 12(b)(1), yet defendant has not cited to, and the Court is not aware of, any authority indicating that jurisdictional issues are implicated under these or analogous circumstances. See generally Def.'s Mem. in Supp. of Mot. Dismiss; Def.'s Reply to Mot. Dismiss.

⁴ In relevant part, this statute states: "any person who is entitled to notice of a summons under subsection (a) shall have a right to begin a proceeding to quash such summons . . . In any such proceeding, the Secretary may seek to compel compliance with the summons . . . the person summoned . . . shall be bound by the decision in such proceeding (whether or not the person intervenes)." 26 U.S.C. § 7609(b).