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Kyle v. United States

United States District Court, Ninth Circuit

December 12, 2013

KYLE RE, on behalf of himself and all others similarly situated, Plaintiff,
v.
THE UNITED STATES OF AMERICA, Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

WILLIAM ALSUP, District Judge.

INTRODUCTION

In this putative class action, the complaint seeks pre-judgment interest on federal income tax overpayments that were reportedly used to offset debts to the United States owed by military veterans. The United States now moves to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The motion is GRANTED.

STATEMENT

The essence of this case is as follows. This action involves a claim for $6.65, but that amount was paid to plaintiff Kyle Re before this action was filed, so all that remains is a claim for pre-judgment interest thereon. Sovereign immunity remaining unwaived for such a claim, subject-matter jurisdiction is lacking. The details of this holding now follow.

1. PROCEDURAL HISTORY.

This action is the third in a series of related class actions, all brought by Attorney S. Chandler Visher of San Francisco beginning in 2007, the first two having gone to judgment. In essence, these actions challenge various aspects of the Army and Air Force Exchange Service's collection of veterans' debt. To understand the government's current motion to dismiss, it is necessary to review the procedural history of the earlier actions.

The first was Briggs v. United States of America, C 07-05760 WHA (N.D. Cal.). Commencing in November 2007, Briggs involved a claim that AAFES had improperly applied finance charges on uniform clothing credit purchases by veterans. AAFES, however, removed the plaintiff's disputed interest charges before a class certification motion or an answer to the complaint was filed. Given that the plaintiff had not used his credit card since December 1993, and was therefore unlikely to be subject to any interest charge on uniform clothing purchases in the future, the finance charges claim was dismissed as moot. Much later, the parties entered into a class settlement that covered other claims, but not the claim concerning uniform clothing purchases. There was no appeal in Briggs.

Russell v. United States of America, C 9-03239 WHA (N.D. Cal.), then began in July 2009. Like Briggs, Russell asserted a claim that AAFES had improperly imposed finance charges on veterans' uniform clothing purchases. In September 2009, the government had audited approximately 170, 000 accounts and had provided adjustments and refunds of improper finance charges on uniform clothing credit purchases by veterans, including by the plaintiff. The finance charge claim was then dismissed as moot. Much later, in connection with a motion for preliminary approval of a class settlement, Attorney Visher advised that the uniform clothing claims would remain, as the settlement did not provide a release as to those claims.

2. THE PRESENT COMPLAINT.

The present complaint alleges the following well-pled facts, which are accepted as true for the purposes of this order. From 1998 to 2006, plaintiff Kyle Re served on active duty in the United States Army. For army personnel such as Re, as well as members of the United States Air Force, AAFES provided a credit agreement for uniform clothing purchases. AAFES is an instrumentality of the United States.

Under the AAFES's credit agreement, no finance charges were to be imposed on uniform clothing purchases. The credit agreement also provided that "charge-off" delinquent accounts would be closed and transferred to "AAFES Collections, " which in turn would collect the debt in accordance with Section 6402(d) of Title 26 of the United States Code and other statutory provisions (Compl. Exh. 1 ¶ 12). According to the complaint, AAFES could and did recover a veteran's delinquent debt by referring the debt to the Department of the Treasury, which administered a collection program seizing tax refunds owed to delinquent veterans.

In December 2006, AAFES records showed that Re owed a delinquent debt of $96.01 for uniform clothing purchases. AAFES then began adding finance charges to Re's debt at a rate of six percent per annum, calculated monthly. AAFES also requested that the IRS deduct Re's debt, including the finance charges, from any income tax refund owed to Re. In February 2008, the IRS was prepared to send Re a refund for his overpayment of federal income taxes from 2007 but AAFES caused an offset to be made against Re's tax overpayment to pay off his uniform clothing debt and the finance charges imposed therein. By that point, Re had accrued "$6.xx of finance charges calculated at 6%" (Compl. ¶ 16). The government concedes that this amount was $6.65.

In 2009, AAFES mailed checks to refund veterans for finance charges that had been imposed on their uniform clothing debts. However, an "estimated 35, 000 [uniform clothing] finance charge refund checks [] were not cashed from the September 2009 refunds, " because AAFES allegedly did not use updated mailing addresses for those veterans. In April 2013, AAFES mailed the uncashed, refund checks from 2009 again. According to the complaint, Re "has never received... the interest for delay in payment of his 2007 tax refund caused by the improper deduction therefrom of his [uniform clothing] debt finance charge" ( id. ¶¶ 17, 19, 28) (emphasis added). In other words, while he got back the $6.65 finance charge, he had not received pre-judgment interest thereon, an amount that would be less than one dollar. Following the two related cases involving allegations of improper debt-collection practices by AAFES - Briggs and Russell - Attorney Visher filed the instant class action complaint on July 30, 2013, proposing Re as a class representative. As its only claim, the complaint alleges that AAFES improperly imposed finance charges on veterans' uniform clothing debts and offset these charges with ...


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