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Brian Kennar, An Individual, and Kathleen v. E. Kelly et al

May 27, 2011

BRIAN KENNAR, AN INDIVIDUAL, AND KATHLEEN
KENNER, AN INDIVIDUAL, PLAINTIFF,
v.
E. KELLY ET AL.,
DEFENDANT.



The opinion of the court was delivered by: Hon. Anthony J. BattagliaU.S. District Judge

ORDER GRANTING IRS DEFENDANTS' MOTION TO DISMISS GRANTING DUNN DEFENDANTS' MOTION TO DISMISS; DENYING DUNN DEFENDANTS' MOTION FOR SANCTIONS

[Dkt. Nos. 17, 25, 59.]

On December 8, 2010, Plaintiffs Brian Kennar and Kathleen Kennar, proceeding pro se filed a First Amended Complaint against ten individual IRS employees ("IRS Defendants"); and Barbara Dunn, an attorney for a defendant in another prior lawsuit, and her firm, Lacey, Dunn and Do ("Dunn Defendants") for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). On December 13, 2010, the Dunn Defendants filed a motion to dismiss. (Dkt. No. 17.) On January 7, 2011, the Dunn Defendants also filed a motion for sanctions. (Dkt. No. 25.) On February 15, 2011, the remaining ten IRS Defendants filed a motion to dismiss. (Dkt. No. 59.) The motion is submitted on the papers without oral argument, pursuant to Local Rule 7.1(d)(1). After a thorough review of the motions and supporting documentation, the Court GRANTS IRS Defendants' motion to dismiss for lack of subject matter jurisdiction and failure to state a claim; GRANTS Dunn Defendants' motion to dismiss for failure to state a claim and DENIES Dunn Defendants' motion for sanction pursuant to Federal Rule of Civil Procedure 11.

Procedural Background

On October 8, 2010, Plaintiffs filed a Complaint alleging RICO claims against individual IRS employees, Barbara Dunn and Lacy, Dunn & Do. (Dkt. No. 1.) On November 18, 2010, in response to Plaintiffs' ex parte motion, District Judge Moskowitz issued an Order Denying Application for an Order Requiring the District Attorney to Serve IRS Parties and Dismissing the Complaint for Failure to State a Claim. (Dkt. No. 10.) On December 8, 2010, a First Amended Complaint was filed. (Dkt. 14.) On December 9, 2010, Defendants Barbara Dunn and LD&D ("Dunn Defendants") filed a motion to dismiss the First Amended Complaint. (Dkt. No. 17.) On January 7, 2011, Defendants Dunn and LD&D filed a motion for sanctions. (Dkt. No. 25.) On January 20, 2011, Plaintiffs filed an opposition to the motion to dismiss and motion for sanctions. (Dkt. Nos. 30-31.) Dunn Defendants filed a reply to both motions on January 28, 2011. (Dkt. Nos. 50-51.)

On February 15, 2011, IRS Defendants filed a motion to dismiss for lack of jurisdiction, insufficient service of process and failure to state a claim upon which relief may be granted. (Dkt. No. 59.) On March 24, 2011, Plaintiffs filed an opposition*fn1 , and on April 8, 2011, IRS Defendants filed a reply. (Dkt. Nos. 62 & 63.) On March 14, 2011, the case was transferred to the undersigned judge. (Dkt. No. 61.)

Factual Background

According to the First Amended Complaint, E. Kelly is an IRS Revenue Officer; C. Rose is an IRS Offer in Compromise Specialist; Pittner and Blizzard are IRS General Managers; Alito is an IRS Director; Crawford is an IRS Area Director; Becerra, is an Assistant General Manager; Plasky is an IRS Process Examiner; and Meigs and Shaughnessy are IRS Attorneys. (FAC at 2.) Defendant Barbara Dunn is an attorney that represented a defendant in another prior lawsuit where Plaintiffs were suing their tax professionals; and Lacey, Dunn & Do is the law firm where Dunn is employed. (Id. at 3.)

Plaintiffs present four distinct "criminal episodes" that encompass six different predicate acts under RICO. The predicate acts alleged are extortion, mail fraud, wire fraud, bank fraud, racketeering and witness tampering. In the first episode, Plaintiffs claim that Defendants Kelly, Plasky, Pittner, Alito, Crawford, Dunn and LD&D unlawfully obtained settlement funds from another prior lawsuit against their tax professionals while an Offer in Compromise was pending. (FAC ¶ 12.) In the second episode, Plaintiffs assert that Defendants Rose, Kelly, Pittner, Alito, Crawford, Blizzard, Becerra, Shaughnessy and Meigs fraudulently returned the Offer in Compromise in order to gain access to the settlement funds. (Id. ¶ 30.) Third, Plaintiffs contend that Defendants Rose, Kelly, Plasky, Pittner, Alito, Crawford, Blizzard, Becerra, Shaughnessy, and Meigs made a second attempt to fraudulently return Plaintiffs' Offer in Compromise in order to gain access to the lawsuit settlement funds. (Id. ¶ 44.) Lastly, Plaintiffs complain they filed two Freedom of Information Act requests in December 2009 and the summer of 2010. (Id. ¶ 55.) Prior to receiving a response to their second request, Plaintiffs filed an administrative complaint against the IRS. (Id.) Defendants Kelly, Plasky, Pittner, Alito, Crawford, Becerra, Shaughnessy and Meigs used the content of the administrative complaint and altered the computer program, ICS-HISTORY, to conceal their dishonest activities. (Id.)

In the first cause of action, Plaintiffs present a RICO claim against Defendants Plasky, Kelly, Pittner, Alito, and Crawford. The second cause of action alleges a RICO cause of action against Defendants Rose, Kelly, Pittner, Alito, Crawford, Blizzard, Becerra, Shaughnessy, and Meigs. On the third cause of action, Plaintiffs allege a RICO action against Defendants Kelly, Plasky, Pittner, Alito, Crawford, Rose, Blizzard, Becerra, Shaughnessy and Meigs. The fourth cause of action presents a claim of conspiracy to commit RICO against Defendants Dunn, and LD&D. Lastly, Plaintiffs allege that Kelly, Plasky and Rose conspired with the remaining IRS Defendants to commit RICO on the third cause of action.

Discussion

I. Legal Standard pursuant to Federal Rule of Civil Procedure 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) allows a dismissal for "lack of subject matter jurisdiction." Fed. R. Civ. P. 12(b)(1). A plaintiff has the burden to establish that subject matter jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377 (1994).

Under Rule 12(b)(1), a jurisdictional attack may either be "facial" or "factual." White v. Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant challenges jurisdiction "facially," all material allegations in the complaint are assumed true, and the question for the court is whether the lack of federal jurisdiction appears from the face of the pleading itself. Thornhill Publishing Co. v. Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). In a factual attack, the "defendant disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A challenge for lack of subject matter jurisdiction may be raised at any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc. v. Barbosa, 134 F.3d 933, 937 (9th Cir. 1998)). It appears that IRS Defendants are challenging jurisdiction, "facially."

A. RICO Claims Against IRS Government Employees

Sovereign immunity shields the federal government and its agencies from suit unless it has expressly waived such immunity. United States v. Shaw, 309 U.S. 495, 500-01 (1940); see also F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1993). "A court lacks subject matter jurisdiction over a claim against the United States if it has not consented to be sued on that claim." Balser v. DOJ, Office of U.S. Trustee, 327 F.3d 903, 907 (9th Cir. 2003). Therefore, an action against employees of the federal government sued in their official capacities are immune from suit. Atkinson v. O'Neill, 867

F.2d 589, 590 (9th Cir. 1989) (citation omitted); Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985) (suit against IRS employees in their official capacities is a suit against the United States). "Where an action is one against named individual defendants, but the acts complained of consist of actions taken by defendants in their official capacity as agents of the United States, the action is in fact one against the United States." Id. Furthermore, there can also be no RICO claim against the federal government. Lancaster Comm. Hosp. v. Antelope Valley Hosp., 940 F.2d 397, 404 (9th Cir. 1991) ("government entities are incapable of forming a malicious intent.") cert denied. 502 U.S. 1094 (1992).

In the original complaint filed on October 8, 2010, Plaintiffs sued the IRS Defendants in their official capacities as employees of the IRS. (Dkt. No. 1.) On November 18, 2010, District Judge Moskowitz dismissed the complaint for failure to state a claim based on sovereign immunity. (Dkt. No. 10.) The Court also determined that the complaint "clearly pertains to allegedly improper actions taken by the IRS defendnats in the collection of Federal tax." (Id.) Therefore, the Court concluded that 26 U.S.C. § 7433(a) is the exclusive remedy for Plaintiffs to recover damages from the IRS resulting from employees' reckless, intentional or negligence acts. (Id.) The Court stated that a taxpayer may not circumvent the comprehensive statutory scheme established by section 7433(a) by asserting RICO claims against the IRS or its employees. (Id.)

In response to the Court's dismissal order, on December 9, 2010, Plaintiffs filed a First Amended Complaint. The First Amended Complaint was amended to state that Plaintiffs are not suing the IRS, The Department of the Treasury or the United States but they are suing the individual IRS Defendants in their individual capacities. (Dkt. No. 14 ¶¶ 1, 7, 8.) An examination of the First Amended Complaint reveals that the only significant change from the original complaint is stating that Plaintiffs are suing the individual IRS Defendants in their individual capacities. The remaining RICO allegations and supporting facts are an exact duplicate of the original complaint. Plaintiffs are attempting to circumvent the sovereign bar by asserting RICO claims against the individual IRS agents in their individual capacities. The allegations presented show that Plaintiffs are not suing Defendants in their individual capacities but in their official capacities as IRS employees, responsible for collecting federal taxes. Accordingly, the Court GRANTS IRS Defendants' motion to dismiss for lack of subject matter jurisdiction based on sovereign immunity. Alternatively, if the Court has subject matter jurisdiction, the Court looks at whether Plaintiffs have stated a RICO claim pursuant to Federal Rule of Civil Procedure 12(b)(6) and 9(b).

II. Legal Standard pursuant to Federal Rule of Civil Procedure 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to supporta cognizable legal theory. See Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). A complaint may survive a motion to dismiss only if, taking all well-pleaded factual allegations as true, it contains enough facts to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to ...


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