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Richard Vern Dowty, et al v. Mike Budde

December 4, 2012


The opinion of the court was delivered by: Barbara A. McAuliffe United States Magistrate Judge


Plaintiffs Richard Dowty and Rebecca Ann Dowty ("Plaintiffs"), appearing pro se and proceeding in forma pauperis, filed this civil rights taxation action on June 6, 2012. (Doc. 1). On July 24, 2012, Plaintiffs filed their First Amended Complaint ("FAC"). (Doc. 5). Plaintiffs name Pacific Bell Telephone Company/AT&T and its employees Mike Budde and Tim Dominak as defendants. For the reasons set forth below, the Court recommends that Plaintiffs' complaint should be DISMISSED without leave to amend.

A. Screening Standard

Pursuant to 28 U.S.C. § 1915(e)(2), the court must conduct an initial review of the complaint for sufficiency to state a claim. The court must dismiss a complaint or portion thereof if the court determines that the action is legally "frivolous or malicious," fails to state a claim upon which relief may be granted, or seeks monetary relief from a defendant who is immune from such relief. 28 U.S.C. § 1915(e)(2).

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief . . .." FED. R. CIV. P. 8(a)(2). Detailed factual allegations are not required, but "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To survive screening, Plaintiff's claims must be facially plausible, which requires sufficient factual detail to allow the Court to reasonably infer that each named defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678-79; Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). The "sheer possibility that a defendant has acted unlawfully" is not sufficient, and "facts that are 'merely consistent with' a defendant's liability" falls short of satisfying the plausibility standard. Iqbal, 556 U.S. at 678; Moss, 572 F.3d at 969.

If the Court determines that the complaint fails to state a claim, leave to amend should be granted to the extent that the deficiencies of the complaint can be cured by amendment. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). Dismissal of a pro se complaint for failure to state a claim is proper only where it is obvious that the Plaintiff cannot prevail on the facts that he has alleged and that an opportunity to amend would be futile. Lopez, 203 F.3d at 1128.

B. Plaintiff's Allegations

Plaintiffs filed this civil rights claim for damages pursuant to 42 U.S.C. section 1983. (Doc. 3, ¶ 1). Plaintiff Vern Dowty alleges that his employer's actions violated Plaintiffs' rights under the Fourth, Fifth, Seventh, and Tenth Amendments through Defendants "use of an administrative procedure which deprived Plaintiffs of property sweat equity compensation without due process of law and trial by jury, resulting in personal damages and public humiliation" through "tax deductions and wage garnishment." (Doc. 3, ¶ 5). More simply, Plaintiffs' complaint challenges Defendant employers compliance with the Internal Revenue Code by withholding federal income tax. Plaintiffs seek injunctive relief against continued withholding, punitive damages for unlawful collection in the sum of "$5,000,000.00 in gold or silver coin value," and compensatory damages of $14,008.40 in federal income taxes, claimed to have been wrongfully collected from Plaintiffs through the Internal Revenue Service ("IRS") for the tax year 2011.

Plaintiffs did not attach any exhibits to their FAC, but the original complaint includes a winding 152-page stream of supporting documents and exhibits that vaguely clarify the nature of Plaintiffs' claim. One such exhibit is a letter to Plaintiff Vern Dowty from the IRS, dated January 4, 2012. (Doc. 1 at 64). According to the letter, the IRS determined that Plaintiff was not entitled to claim a complete exemption from withholding or more than a specified number of withholding allowances. The letter advised Plaintiff that the IRS had notified Plaintiff's employer to disregard Plaintiff's claimed marital status and/or withholding allowance or the claim to complete exemption from withholding on Plaintiff's W-4 Form. The letter further advised that the IRS had directed Plaintiff's employer to withhold income tax from Plaintiff's wages based on a marital status of "single" and no withholding allowances. Finally, the letter informed Plaintiff that the IRS had instructed Plaintiff's employer not to honor Plaintiff's current or new W-4 Form unless the status and/or allowances claimed resulted in more income tax withholding than indicated in the letter. The letter also outlined the procedure to answer any questions about or register a disagreement with the IRS determination, including what information to submit, how and where, complete with address, fax number and telephone number. Plaintiff does not allege whether he availed himself of the outlined procedure.

C. Lack of Subject Matter Jurisdiction

A review of Plaintiffs' complaint reveals that the complaint is deficient. In summary, Plaintiffs fail to state a cognizable claim because their claims against Defendants for complying with the IRS's directions to withhold Plaintiff's wages, do not fall under 42 U.S.C. section 1983 and are statutorily barred. Therefore, Plaintiffs' complaint should be dismissed.

The Internal Revenue Code expressly provides that an employer is liable to the IRS for payment of tax withheld, but is not "liable to any person for the amount of any such payment." 26 U.S.C. § 3403. An employer "is immune from liability to the employee for the withholding, since the duty to withhold is mandatory." Maxfield v. United States Postal Service, 752 F.2d 433, 434 (9th Cir. 1984). The Ninth Circuit also expressly provides "that an employer is not liable to an employee for complying with its legal duty to withhold tax." Bright v. Bechtel Petroleum, Inc.,780 F.2d 766, 770 n.5 (9th Cir. 1986) ("if the IRS issues a directive instructing an employer to disregard an employee's withholding exemption W-4 Form as defective, the employer must withhold amounts from the employee's wages in accordance with the IRS notice."); see also Edgar v. Inland Steel Co., 744 F.2d 1276, 1278 (7th Cir. 1984) ("Employees have no cause of action against employers to recover wages withheld and paid over to the government in satisfaction of federal income tax liability."); Giles v. Volvo Trucks North America, 551 F. Supp. 2d 359, 363 (M.D. Pa. 2008) ("an employee may not bring a claim against his employer for withholding taxes from the employee's pay"); Purk v. United States of America, 747 F. Supp. 1243, (S.D. Ohio 1989) ("an employer cannot be made liable for failing to honor an employee's W-4 form when it has been directed to do so . . . by the Internal Revenue Service").

In Bright, the IRS issued a directive to Plaintiff's employer declaring the plaintiff's W-4 Form invalid and ordering the employer to begin withholding federal income tax. Bright, 780 F.2d at 768. Plaintiff then brought a breach of contract claim in state court asserting that the employer breached the employment contract by paying Plaintiff less than the contract required with a paycheck that withheld state and federal income taxes. Id. The employer removed the action to federal court and moved for dismissal. Id. The Bright court found that the plaintiff's complaint was a product of artful pleading, since it really challenged the federal income tax withholding laws and regulations. Id. at 769. Relying on Ninth Circuit law, the Court upheld the dismissal of Plaintiff's complaint. Id. at 770.

The Court is guided by the Ninth Circuit's decision in Bright. Here, the IRS sent a letter to Plaintiff's employer explicitly instructing it to disregard Plaintiff's W-4 Form and to withhold tax as if Plaintiff claimed a single filing status with zero allowances. Plaintiffs now bring this suit claiming that Defendants' administrative procedures of "wage garnishment and tax deductions" resulted in Plaintiffs' damages. Following the Ninth Circuit's approach in Bright, the Court holds "under 26 U.S.C. § 3402, an employer has a mandatory duty to withhold federal income tax from an employee's wages where required by applicable regulations." Id. Defendants' withholding of federal income tax from Plaintiff's wages, is in full compliance with federal Internal Revenue regulations. See 26 C.F.R. § 31.3402(f)(2)-1 (an employer is required to secure from their employees a withholding exemption certificate relating to martial status and the number of withholding exemptions claimed); 26 C.F.R. § 31.3402(f)(2)-1(g)(1)(i) & (ii) (requires that if employees submit certificates, wherein the total number of exemptions exceed ten or claiming status exempting them from withholding, the certificate shall be submitted with a copy of any written statements made by the employee to the IRS); 26 C.F.R. § 31.3402(f)(2)-1(g)(1) & (2) (an employer is required to forward an employee's W-4 Form to the IRS, if the employee claims an exemption from withholding of tax while earning more than $200 per week); 26 C.F.R. § 31.3402(f)(2)-1(g)(5)(iii)-(v) (if the IRS issues a ...

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