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Ford v US: Supreme Court Weighs in on Lower Court Jurisdiction in Interest Disputes

Posted on Dec. 3, 2013

Yesterday, the Supreme Court granted cert and remanded the case of Ford v US back to the Sixth Circuit.  The case on the merits involves the question as to when Ford is entitled to receive overpayment interest on about $875 million of deposits it made that it subsequently requested the IRS treat as advance payments.  Later, Ford and IRS both agreed that Ford overpaid its taxes and Ford received a refund of the overpaid amounts. IRS and Ford disagreed on when the payments should generate overpayment interest. I will briefly discuss the interesting jurisdictional issue that the Court raised, as it brings into question whether the case should have been brought originally in the Court of Federal Claims, and not a district court.

Ford and the US disputed when the interest should have run on its overpayment under Section 6611(b)—Ford said the date should be when it first remitted its deposits; the US said interest ran only from when Ford requested that the deposits be treated as advance payments of tax.

The Sixth Circuit agreed with the government’s interpretation. One interesting part of the case is that the Sixth Circuit decided the case, in part, on the basis that Section 6611(b) was a waiver of sovereign immunity, and those waivers should be strictly construed.

In its cert petition, Ford argued that the Sixth Circuit impermissibly framed Section 6611(b) as the applicable provision waiving sovereign immunity. Instead, Ford argued 28 USC 1346(a)(1) was the provision waiving sovereign immunity; 6611(b) was a substantive provision that was entitled to no special governmental deference. The reason Ford believed this was important is that it opened the door to a construction of Section 6611(b) that was not tethered to the principle that provisions waiving sovereign immunity are to be construed strictly in favor of the government.

In its response to the cert petition, DOJ argued for the first time that 28 USC 1346 (giving concurrent jurisdiction to the court of federal claims and district courts) was not the correct statute conferring jurisdiction on the lower courts. I will repeat the government’s position below as set out in its response in opposition to the cert petition:

Petitioner asserts (Pet. 17 n.1) that Section 1346(a)(1) itself provides the requisite “express congressional consent to the award of interest separate from a general waiver of immunity to suit.” Shaw, 478 U.S. at 314. Section 1346(a)(1) grants jurisdiction to district courts (concurrent with the Court of Federal Claims) over “[a]ny civil action against the United States for the recovery of *                  *                  * any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.” 28 U.S.C. 1346(a)(1). That language does not literally encompass (and, a fortiori, does not unambiguously authorize) petitioner’s current suit. Petitioner does not seek to recoup any prior payment made to the government that was “excessive” or “wrongfully collected,” but instead seeks additional interest on an overpayment that has already been refunded.

As explained above, however, the term “sum” in Section 1346(a)(1) is modified by the phrase “excessive or in any manner wrongfully collected under the internal- revenue laws.” That phrase might encompass interest that the taxpayer has paid over to the IRS and seeks to recoup, as when the IRS assesses additional tax and interest, and the taxpayer pays the full assessment and then sues for a refund.

The interest that petitioner seeks here, however, was never in petitioner’s possession, and petitioner does not assert that it is either “excessive” or “wrongfully collected.” Thus, even apart from the fact that Section 1346(a)(1) does not specifically mention interest, the provision does not literally authorize petitioner’s current suit.

In a footnote (note 9), the government suggested the result that the Supreme Court took:

“[b] ecause binding Sixth Circuit precedent held that Section 1346(a)(1) vests district courts with jurisdiction over suits like this one, the government did not argue below that the district court lacked jurisdiction over this case….This Court, however, obviously would not be bound by that circuit precedent.”

Earlier, in its response (n. 3), DOJ stated that it believed the Tucker Act controlled. The Tucker Act is found at 28 U.S.C. 1491(a), and is a general statutory provision providing for waiver of sovereign immunity on certain claims, and which vests jurisdiction in the Court of Federal Claims.

Since the parties in the lower courts did not address whether the Tucker Act, and not 28 USC 1346, formed the basis for waiver of sovereign immunity, the Supreme Court remanded the case back to the Sixth Circuit. The Sixth Circuit will now directly consider the jurisdictional issue. In either case, I believe Ford is correct that conflating 6611(b) with either of the two provisions waiving sovereign immunity is an error, and the courts will likely consider the merits as to when interest is due apart from statutory construction principles tied to sovereign immunity.

As an aside, the possibility of Ford decreasing lower court diversity through funneling these types of cases exclusively to the Court of Federal Claims, rather than the myriad district courts, ties in nicely with Keith’s prior post on the Golsen rule. Jack Townsend too takes up the issue of specialized court review of tax cases, with an excellent post linking articles that have discussed the issue.

Later this week, we will post as to the merits of the parties’ claims on when overpayment interest was due to Ford.

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