The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO RECONSIDER (Doc. No. 62)
Presently before the Court is the United States of America's ("Defendant" or "the government") motion to reconsider this Court's Order dated September 29, 2009. (Doc. Nos. 61, 62.) Also before the Court is Plaintiff's opposition and Defendant's reply. (Doc. Nos. 63, 64, 65.) For the reasons stated below, the Court HEREBY GRANTS IN PART and DENIES IN PART Defendant's motion to reconsider and DISMISSES WITH PREJUDICE Plaintiff's first cause of action insofar as it is based on alleged violations of 26 U.S.C. § 7602(c)(2) and 26 C.F.R. § 301.7602-1(c)(3)(ii).
This action arises out of a default judgment entered by this Court in United States v. Scharringhausen, 226 F.R.D. 406, 413 (S.D. Cal. 2005) (the "underlying action"). In that case, the Court reduced outstanding federal tax assessments to judgment on default. Id. The present action asserts two causes of action in relation to the United States' alleged misconduct in seeking that judgment. The first cause of action in the Second Amended Complaint ("SAC") seeks damages for four alleged violations of the Internal Revenue Code or Treasury Regulations pursuant to 26 U.S.C. § 7433. (See SAC, Doc. No. 51, at 6-9.) The second cause of action requests production of withheld records pursuant to 5 U.S.C. § 552 and is not at issue in the present motion. (Id. at 9-11.)
On April 13, 2009, Defendant filed a motion to dismiss the first cause of action for lack of jurisdiction pursuant to Rule 12(b)(1) or, in the alternative, for failure to state a claim pursuant to Rule 12(b)(6). (Doc. No. 53.) Plaintiff filed an opposition and Defendant filed a reply. (Doc. Nos. 56, 57.) On September 29, 2009, this Court granted in part and denied in part Defendant's 12(b)(1) motion to dismiss for lack of jurisdiction. (Doc. No. 61.) The Court found that one of the four alleged violations asserted in the SAC, 26 U.S.C. § 7122, had not been administratively exhausted. (See id. at 4-8.) The Court then addressed Defendant's 12(b)(6) motion as to all remaining violations, which were violations of 26 U.S.C. § 7602(c)(2), 26 C.F.R. § 301.7602-1(c)(3)(ii) and 26 U.S.C. § 7491(a). (Id. at 9-12.) The Court denied Defendant's 12(b)(6) motion to dismiss as to all three violations. (Id.)
On October 14, 2009, Defendant filed the present motion for reconsideration, asserting that the Court erred in denying its 12(b)(6) motion to dismiss the three alleged violations. (Doc. No. 62.) Plaintiff filed an opposition to the motion on November 19, 2009 (Doc. No. 63), and Defendant filed its reply on November 25, 2009. (Doc. No. 65.) The hearing scheduled for December 3, 2009 was thereafter vacated and the matter was taken under submission without oral argument.
District courts have the inherent authority to entertain motions for reconsideration of interlocutory orders. Amarel v. Connell, 102 F.3d 1494, 1515 (9th Cir.1996) ("[I]nterlocutory orders . . . are subject to modification by the district judge at any time prior to final judgment." (quoting In re United States, 733 F.2d 10, 13 (2nd Cir. 1984))); Fed. R. Civ. P. 54(b). Although a district court may reconsider its decision for any reason it deems sufficient, generally a motion for reconsideration "is appropriate if the district court: (1) is presented with newly discovered evidence; (2) committed clear error or the initial decision was manifestly unjust; or (3) if there is an intervening change in controlling law." School Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); see also Hydranautics v. FilmTec Corp., 306 F.Supp. 2d 958, 968 (S.D.Cal. 2003). Whether to grant or deny a motion for reconsideration is in the sound discretion of the district court. Navajo Nation v. Norris, 331 F.3d 1041, 1046 (9th Cir. 2003) (citing Kona Enter., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000)).
Defendant's motion for reconsideration is based on its argument that the Court committed clear error in its Order dated September 29, 2009 by denying its 12(b)(6) motion for failure to state a claim upon which relief may be granted.*fn1 (See Mot. to Reconsider at 4, 6, 8.) Specifically, the Court found that Plaintiff adequately pled violations of 26 U.S.C. § 7491(c), 26 U.S.C. § 7602(c)(2), and 26 C.F.R. § 301.7602-1(c)(3)(iii) sufficient to establish a cause of action for damages under 26 U.S.C. § 7433.*fn2 Defendant challenges each.
Section 7491 governs the burden of proof and production in tax-related judicial proceedings. Section 7491(a) provides that the burden of proof shifts to the government where the "taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B[,]" subject to some limitations not relevant to this action. 26 U.S.C. § 7491(a)(1), (2). Section 7491(c), the provision allegedly violated in this matter, provides that the government "shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title." Id. § 7491(c). Section 7491(c) does not make reference to subtitle A or B, or any other specific subtitle.
Defendant first argues that, given the language in § 7491(a), § 7491(c) can only apply to taxes imposed pursuant to subtitle A or B, but that the Trust Fund Recovery Penalties (TFRP) at issue in this action are imposed under 26 U.S.C. § 6672, which is located under subtitle F. Defendant's argument confuses the burden of proof with the burden of production.
Under § 7491(a), the burden of proof does indeed shift to the government after the taxpayer produces credible evidence for taxes imposed under subtitle A or B, which are income, estate and gift taxes. 26 U.S.C. § 7491(a). The burden of proof, however, differs from the burden of production, which is addressed by § 7491(c) and does not make reference to any subtitles and is an independent subsection from the provision providing for when the burden of proof shifts to the government. Thus, Defendant's contention that "Courts continue to assign the burden of proof to the taxpayer in TFRP cases" is inapplicable to who holds the burden of production in TFRP cases. (See Mot. to Reconsider at 5 (citing United States v. White, 466 F.3d 1241, 1248 (11th Cir. 2006); Moulton v. United States, 429 F.3d 352, 357-58 (1st Cir. 2005); Winter v. United States, 196 F.3d 339, 345 (2d Cir. 1999).) The Court finds that section 7641(c) merely mandates that the burden of production remains with the government with respect to a taxpayer's liability for any penalty, notwithstanding the burden of proof or the taxpayer's introduction of ...