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Out of Time: The Government (Mostly) Wins at the District Court in Govig

Posted on Mar. 30, 2023

We welcome back previous guest blogger Susan C. Morse, who is the Angus G. Wynne Sr. Professor in Civil Jurisprudence and Associate Dean for Academic Affairs at the University of Texas at Austin School of Law. Today’s post provides insight for those interested in challenging regulations and a cautionary tale if the regulations have been on the books for some time. Keith

On March 23, Senior District Judge David G. Campbell of the District Court of Arizona decided Govig v. United States. He correctly dismissed as time-barred two administrative procedure claims because of 28 U.S.C. § 2401(a), the default six-year limitations period for suits against the federal government. As I’ve written in a forthcoming paper, Old Regs, this is the first time that a court has considered this six-year time bar for administrative procedure claims in a tax case. It shouldn’t be the last, given taxpayers’ interest in challenging the administrative procedure bona fides of Treasury and IRS actions taken decades ago and the government’s interest in raising the 6-year time bar as a defense. (Prior Procedurally Taxing coverage here.)

Govig involves penalties that the government proposed to impose on taxpayers for failing to report their use of an employee welfare benefit tax plan that is a “listed transaction” under Notice 2007-83. The taxpayers engaged in the listed transaction in 2015, and the government applied the Notice to them in 2019. The key time-bar question is when the “right of action first accrues” for purposes of 28 U.S.C. § 2401(a). The taxpayer said 2019. The government said 2007. The taxpayer won as to one claim, and the government as to two claims. Govig not only breaks new ground as the first case to time-bar an administrative procedure claim in tax, but also contributes a clear explanation and illustration of how to distinguish between earlier-accrual and later-accrual cases.

Before reaching the limitations period question, Judge Campbell considered the effect of both Mann Construction Inc. v. United States and the Anti-Injunction Act. He held that Mann Construction did not produce a win for the plaintiffs, and that the Anti-Injunction Act did not produce a win for the government. These analyses are described briefly below before the discussion returns to the limitations period issue.

Mann Construction, a Sixth Circuit 2022 case authored by Chief Judge Jeffrey Sutton, concluded that the IRS could not apply Notice 2007-83 to a plaintiff because the Notice was not issued under the notice-and-comment provisions of the APA. The question for Judge Campbell in Govig was whether Mann Construction established a nationwide set-aside ruling that invalidated the application of the same Notice in Govig, even though Govig arose outside the Sixth Circuit. Judge Campbell held that Mann Construction did not mean that Notice 2007-83 was set aside for purposes of the Govig case. Judge Campbell quoted Judge Sutton’s concerns about nationwide injunctions drawn from a concurring opinion in another case, where Sutton wrote that the “set aside” language of APA § 706(2) was ambiguous and that Sutton “would be inclined to stand by the long understood view of equity – that courts issue judgments that bind the parties in each case over whom they have personal jurisdiction.”

The Anti-Injunction Act bars many tax claims related to assessment and collection, and the government argued that it barred various claims in Govig. But Judge Campbell concluded that the Anti-Injunction Act does not block the plaintiffs from challenging reporting requirements far removed from the process of tax assessment and collection, particularly where criminal penalties are possible. This follows the logic of the 2021 Supreme Court case CIC Services v. IRS and reaches a result consistent with decisions in the First and Sixth Circuits. Judge Campbell concluded that the Anti-Injunction Act barred only one claim brought in Govig, which related to a claim for refund of tax penalties.

Judge Campbell then proceeded to analyze the limitations period issue. Perhaps he covered it last rather than first because the Ninth Circuit’s view is that 28 U.S.C. § 2401(a) is not jurisdictional. The D.C. and Sixth Circuits also hold the non-jurisdictional view, based on their interpretation of the Supreme Court’s Irwin v. Department of Veterans’ Affairs and United States v. Kwai Fun Wong precedents. The non-jurisdictional view is probably the better view, although the Fifth Circuit disagrees. If 28 U.S.C. § 2401(a) is not jurisdictional, as in the Ninth Circuit, then a court is not required to raise it sua sponte and the government may waive it. Govig, notably, is the first tax / administrative procedure case in which the government raised (rather than waiving) the six-year time bar as a defense.

The Govig court correctly explained the “two accrual rules for APA claims” in the Ninth Circuit. The first rule comes from Shiny Rock Mining Corp. v. United States, a 1990 case:  

[I]f a claim challenges the procedures the agency used in issuing the rule or the policy behind the rule, the claim accrues when the rule is issued.

The second rule comes from Wind River Mining Corp. v. United States, a 1991 case:

[A] plaintiff may challenge the substance of an agency rule as exceeding statutory or constitutional authority by bringing an APA claim within six years of the agency’s application of the rule to the plaintiff.

Together, these cases are known as the Wind River doctrine: 28 U.S.C. § 2401(a) accrues at the time of rulemaking for claims relating to procedure contemporaneous with rulemaking, but accrues later, at the time the rule is applied, for claims that the substance of agency rulemaking violates the Constitution or exceeds the bounds of the authorizing statute. In addition to the Ninth Circuit, the Second, Fourth, Fifth, Sixth, Eleventh, and Federal Circuits have also endorsed the Wind River doctrine. The D.C. Circuit and the Supreme Court, however, have not squarely addressed the time-of-accrual issue.

Judge Campbell’s cogent restatement of the Wind River doctrine supported his clean application of the time-bar defense to three claims in Govig:

First, the plaintiffs claimed that the IRS violated the notice-and-comment requirements of APA § 553 when it issued Notice 2007-83. This claim that the IRS did not use notice-and-comment procedure is a classic claim within the first category, i.e., that an agency did not follow proper procedure in issuing a rule. Thus, it accrued in 2007 and was time-barred.

Second, the plaintiffs claimed that the IRS Notice exceeded the authority of IRC § 6707A , which asked the IRS to identify “listed transactions,” ”because the notice failed to describe the listed transactions with the specificity required by the statute.” Judge Campbell held that this second claim amounted to a claim that the IRS exceeded the authority of the authorizing statute, like the ultra vires question presented by Wind River, where a plaintiff argued that a regulation was invalid because it applied to an area that was not “roadless” as required by the substantive statute. Thus, the second claim accrued in 2019 and was not time-barred.

Third, the plaintiffs claimed that the IRS acted arbitrarily and capriciously in violation of APA § 706(2)(A) because it did not give “adequate reasons” for the Notice and did not solicit public comments. This claim that the IRS acted in an arbitrary and capricious manner was also a rulemaking-contemporaneous procedural claim, because the alleged lack of reason-giving related to the procedures used at the time the agency issued the rule. Thus, the third claim accrued in 2007 and was time-barred.

The district court was not swayed by the fact that the Govig taxpayers did not have standing to sue in 2007. It acknowledged that the limitations period may run against a plaintiff for administrative procedure claims even before the plaintiff is injured. This at first may seem strange, but it is the only way that there can be an effective time limit on challenges to the procedures the agency used in issuing the rule. Otherwise, a plaintiff could always come into existence at a later date, acquire standing at that later date, and raise the stale administrative procedure question. If the rule violates the authorizing statute or the Constitution, that is different, because these are controlling forms of law that offer continued requirements or protections. Administrative procedure, in contrast, offers a general public right to participate in decisionmaking when that decisionmaking occurs. It relates to a particular moment in time – the moment when the agency issues a rule.

The Govig court also considered and rejected the plaintiffs’ equitable tolling claim. This exception provides the main avenue to relief from 28 U.S.C. § 2401(a). (Equitable estoppel is another exception sometimes raised, but it apparently was not in this case.) The Govig opinion explains that “because Plaintiffs did not diligently pursue their procedural challenges, they are not entitled to equitable tolling.” This is a good start, although it does not consider another important equity factor, which has to do with the defendant rather than the plaintiff. The court might have exercised its equity muscles more thoroughly.

For instance, the court could have used the Supreme Court’s two-part disjunctive test for equitable tolling in Irwin:

We have allowed equitable tolling in situations where the claimant has actively pursued his judicial remedies by filing a defective pleading during the statutory period or where the complainant has been induced or tricked by his adversary’s misconduct into allowing the filing deadline to pass. [Emphasis added]

The Govig plaintiffs meet neither part of this disjunctive test. They did not file any pleading (or take any other relevant action) during the statutory period, which expired in 2013. And also, the government did not engage in any misconduct which would have delayed these plaintiffs’ ability to file within the statutory period. Equitable tolling has been allowed, for example, when the government fraudulently concealed facts or when a government office required to furnish a plaintiff with a form for filing a claim failed to provide the form. In contrast, in Govig, the government did not block or delay the plaintiffs’ ability to bring their administrative procedure challenge.

The district court’s careful application of Ninth Circuit precedent meant that it did not have to deconstruct the Wind River doctrine’s conclusion that 28 U.S.C. § 2401(a)’s reference to “first accrues” means the time when a rule is issued for administrative procedure claims. But if future courts – including the Supreme Court – consider this issue from a statutory interpretation perspective, they should conclude that a careful textual reading of the statute supports the Wind River reading, as explained further here. Judge Campbell’s holding correctly time bars the non-ultra vires APA claims in Govig.

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