Guest blogger Bob Probasco returns with the second of a two-part post on developments in overpayment interest litigation. Christine
In the last post, I discussed the latest developments in the Paresky and Pfizer cases. The latter in particular was an important milestone that may change how courts approach the issue of district court jurisdiction for taxpayer suits seeking interest payable to them by the government on tax refunds. This post turns to Bank of America, with some additional general observations.
These cases involve the interpretation of 28 U.S.C. § 1346(a)(1), which provides district court jurisdiction over tax refund suits. Does it also offer jurisdiction for suits for overpayment interest, even though technically those are not refund suits? The government says no, but taxpayers may argue it does, in order to escape the $10,000 dollar limitation for district court jurisdiction under the “little” Tucker Act, § 1346(a)(2). If § 1346(a)(1) provides jurisdiction for these overpayment interest suits, which statute of limitations applies – the general six-year statute of limitations under § 2401 or the two-year statute of limitations for refund suits under section 6532(a)(1)?
As discussed in the last post, the report and recommendation by the magistrate judge in Paresky concluded that the Southern District of Florida had jurisdiction under § 1346(a)(1) but the suit should be dismissed because the refund claim was not filed timely. We’re waiting to see what the district court judge thinks. In Pfizer, we had the first Circuit Court decision to directly decide that § 1346(a)(1) does not provide jurisdiction for these kinds of suits, setting up a circuit split. And in Estate of Culver, the District of Colorado adopted the Second Circuit’s reasoning in Pfizer. It will be a while before we see what effect, if any, Pfizer has in the Bank of America case, where there has also been a new development.
What is happening with Bank of America?
Bank of America filed this case in the Western District of North Carolina (WDNC), apparently to avoid an unfavorable precedent in the CFC (see here for details). The bank’s interest netting case sought both recovery of underpayment interest and additional overpayment interest. The government filed a motion to transfer the claims requesting overpayment interest to the CFC; in the alternative, to dismiss because § 1346(a)(1) does not cover suits for overpayment interest. It also suggested that cases filed under § 1346(a)(1) would be subject to the Code refund claim requirement and statute of limitations, sections 7422 and 6532 respectively. The WDNC denied the government’s motion on June 30, 2019, relying heavily on the Scripps decision.
An interlocutory appeal by the government to the Fourth Circuit seemed more probable than the alternative of waiting until a decision on the merits. A transfer to the CFC would likely result in certain victory by the government for most of the amount at issue, so it certainly would make sense to challenge the jurisdictional ruling now. Then I belatedly checked the docket for Bank of America and realized there was a third possibility that I hadn’t even counted upon (gratuitous reference for fellow baby boomers). The government filed a notice of appeal on August 28, 2019 – not to the Fourth Circuit, but to the Federal Circuit.
Appellate specialists are probably nodding their heads now and murmuring “of course.” And they may have been rolling their eyes at my earlier speculation about an interlocutory appeal to the Fourth Circuit. But, alas, I am not an appellage specialist and had never before encountered 28 U.S.C. § 1292(d)(4). I now know that the Federal Circuit has exclusive jurisdiction for appeals of a district court interlocutory order granting or denying, in whole or in part, a motion to transfer an action to the CFC. Before I ran across this provision, I assumed that the CFC and Federal Circuit would never have occasion to rule on a jurisdictional provision that applied only to district courts (more about that below). But that assumption is apparently wrong. The WDNC’s denial of the motion to transfer the case to the CFC was based on its determination that district courts do have jurisdiction under § 1346(a)(1) so that is presumably what the Federal Circuit will have to decide.
The government could also have appealed to the Federal Circuit in the Pfizer case, after the denial by the SDNY back in 2016 of the first motion to dismiss, but did not do so. Perhaps it wanted to get a ruling on the separate statute of limitations issue. But it may have just been a case of different strategies by different trial teams. Pfizer was handled by the U.S. Attorney’s office for the SNDY; while Bank of America was handled by DOJ Tax Division, as was Paresky.
Is there a Supreme Court visit in the future?
We now have a circuit split between the Second (Pfizer) and the Sixth (Scripps). But the government won in Pfizer, so the taxpayer would have to seek certiorari. Pfizer may decide to proceed without the favorable Second Circuit precedent; it can still win in the CFC. Bank of America seems more likely than Pfizer to go to the Supreme Court, since both parties have strong motivations. The government wants to overrule Scripps and Bank of America would lose most of the value of its interest netting claim if forced to litigate in the CFC. We’ll have to wait to see how Paresky and Estate of Culver proceed.
A comment on underlying policy
We all recognize the Tax Court’s relative expertise, compared to courts of general jurisdiction, on tax issues. But there is also a difference in expertise between the CFC and district courts. The district court jurisdictional structure demonstrates two different policy decisions, aiming in different directions. The dollar limitation in § 1346(a)(2) – the “little” Tucker Act – was based on a judgement by Congress that the Court of Claims (now the CFC) would have more expertise with claims against the government, because that is a major part of its caseload compared to district courts. Small claims could be pursued in district courts so that taxpayers wouldn’t have to litigate in far off Washington, D.C., but larger ones should be filed in the Court of Claims.
When the predecessor of § 1346(a)(1) was enacted, it also was subject to a dollar limitation but that limitation was later removed. That was based on a judgement by Congress that tax refund suits were different from other claims against the government and taxpayers should always be able to litigate those locally instead of with the CFC.
Which of those policy judgements should apply to the specific questions of interest on overpayments and underpayments of tax?
Many years ago, Mary McNulty and I were tracking all significant interest cases (both overpayment interest and underpayment interest). I recently looked back at the list as of five years ago. It showed 5 cases filed in district courts and 63 filed in the CFC. When you factor in the number of district court judges compared to the number of CFC judges, that ratio is orders of magnitude more experience by the CFC judges (as well as the Federal Circuit) with the specific, complex issues of interest. Most taxpayers chose that forum, although as precedents built up and unresolved issues were narrowed, there may be more motivation for taxpayers to avoid unfavorable precedents in the CFC and Federal Circuit, as in Bank of America.
And a final comment on CFC jurisdiction
I’ve been focusing in all of these blog posts on district court jurisdiction. But when I discussed Pfizer recently with Jack Townsend, he pointed out something in some of these opinions that I skipped over. The courts occasionally referred to § 1346(a)(1) as granting jurisdiction to both the district courts and the CFC. Early in my career, I read the provision that way but over the years I came around to the idea that the reference to the CFC is just a reminder rather than an actual grant of jurisdiction. I don’t recall offhand ever seeing the CFC refer to that provision as the basis for its jurisdiction over a tax refund suit. I mentioned that briefly in this blog post but it’s worth pointing out explicitly.
The structure of the statute strongly supports that interpretation. Section 1346(a)(1) is part of Chapter 85 of Title 28, which is titled “District Courts; Jurisdiction.” Chapter 91 covers the CFC’s jurisdiction. The specific language “shall have original jurisdiction, concurrent with the United States Court of Federal Claims, of” appears in § 1346(a) and thus applies not only to § 1346(a)(1) but also to § 1346(a)(2). The latter certainly doesn’t grant jurisdiction to the CFC for Tucker Act claims, since the CFC already has jurisdiction under § 1491. And § 1346(a)(2) refers to “any other civil action or claim against the United States,” whereas § 1491 just says “any claim against the United States.” That convinces me that tax refund suits, covered by § 1346(a)(1), are a “claim against the United States” encompassed within § 1491.
If that doesn’t convince you, Jack’s blog post has a footnote by Judge Allegra on the topic that should.