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Kelly v. Alabama Department of Revenue

United States District Court, M.D. Alabama, Northern Division

March 31, 2015

KASWANA A. KELLY, Plaintiff,
v.
ALABAMA DEPARTMENT OF REVENUE, et al., Defendants.

RECOMMENDATION OF THE MAGISTRATE JUDGE

WALLACE CAPEL, Jr., Magistrate Judge.

Before the court is Defendant's Motion to Dismiss Plaintiff's Complaint (Doc. 15), Plaintiff's Response (Doc. 17) to the motion, Defendant's Supplemental Brief (Doc. 19) addressing recent changes in Alabama law, Plaintiff's Response (Doc. 24) to Defendant's supplemental brief, Plaintiff's Supplemental Response (Doc. 28) to Defendant's motion to dismiss, and Defendants' Reply (Doc. 29) to Plaintiff's supplemental response. The District Judge referred this case to the undersigned Magistrate Judge "for all pretrial proceedings and entry of any orders or recommendations as may be appropriate." Order (Doc. 4). After a review of the parties' filings and supporting evidentiary materials, and for the reasons that follow, the undersigned RECOMMENDS that Defendant's Motion to Dismiss (Doc. 15) be GRANTED.

I. BACKGROUND

The court has carefully considered the pleadings in this case and all documents submitted in support of, and in opposition to, Defendant's Motion to Dismiss. In her amended complaint, Plaintiff alleges, in pertinent part, as follows:

Plaintiff is from Tuscumbia, Alabama, where her mother still lives. Am. Compl. (Doc. 8) at 2, 3. Plaintiff graduated college "from the University of Northern Alabama in Florence, Alabama[, ]" but has been living in Tennessee since 2007 and has been "employed with Anchor Tours in White Creeks, Tennessee[, ] for seven years." Id.

Plaintiff received a letter from the Alabama Department of Revenue at her mother's address in Tuscumbia, Alabama, on July 2, 2014. Id. at 3. The letter stated that Plaintiff owed the Alabama Department of Revenue $1, 707.68 in state income taxes for the year 2011. Compl. exh. 1 (Doc. 1-1) at 1. Plaintiff has filed federal income tax returns bearing a Tennessee address since 2007. Am. Compl. (Doc. 8) at 3-4. Plaintiff maintains that the letter she received at her mother's house on July 2, 2014, is the only correspondence she has received concerning the tax debt which the Department asserts she owes to Alabama. Id. at 10; Pl.'s Br. (Doc. 24) at 1.

In response to the letter, Plaintiff called the Department on July 10, 2014, and was instructed "to provide additional proof of her residency in Tennessee." Id. at 4. Plaintiff thereafter faxed to the Department a Tennessee vehicle registration in her name, a billing history for Nashville Electric Service, a water bill, and a lease from her former apartment. Id. Subsequently, the Department "placed a tax lien on Plaintiff's credit reports, " causing a thirty-nine point decrease in her credit score. Am. Compl. (Doc. 8) at 5.

Next, Plaintiff and her fiance, Samuel Robinson, conducted a conference call with an agent at the Alabama Department of Revenue and were told that the information Plaintiff provided was not sufficient to provide proof of residency. Id. at 7. Plaintiff then received a phone call from Defendant Baxley, [1] an employee of the Alabama Department of Revenue's Criminal Investigations Division, stating that collections actions were initiated based on Plaintiff still retaining an Alabama driver's license. Id. at 8. The following day, Plaintiff spoke on the phone with Defendant Crumbley, the Director of Operations for the Criminal Division of the Department of Revenue. Defendant Crumbley was unable to provide Plaintiff with satisfactory responses to her charges of various "civil rights violations and criminal allegations, " and refused to further investigate Plaintiff's claims. Id. at 11-12.[2]

Based upon these allegations, Plaintiff has filed the instant Amended Complaint, alleging the following causes of action

a. that Defendants violated her procedural due process rights by taking adverse action against her and causing her actual harm when they "made a determination of residency, and a determination of liability, without affording Plaintiff minimal procedural due process[;]"
b. that the Department of Revenue violated her substantive due process rights when it "imitated [sic] a governmental action against Plaintiff, " which harmed Plaintiff, and which was "without legal authority or personal jurisdiction[, ]" and that Defendants Baxley and Crumbley failed to protect the due process rights of Plaintiff despite their purported awareness of such violation of her rights;
c. that Defendants violated her rights under the Privileges and Immunities Clause when they "imposed law of the State of Alabama upon Plaintiff, though she is immune from such law as a resident of Tennessee, and was treated in a manner dissimilar than other Tennessee residents[;]"
d. that Defendants violated her rights under the Fourth Amendment when they "placed a tax lien against the Plaintiff, preventing her from the transfer of any property, from refinancing her home, and from making purchases with the use of her credit[;]"
e. that Defendants violated the Fair Credit Reporting Act when they "placed a tax lien on Plaintiff's credit report, knowing in advance that there was no legal basis for the actions, fraudulently reporting the tax lien to all existing credit reporting agencies, also making a fraudulent representation that Plaintiff owes the state of Alabama taxes, or is otherwise delinquent[;]"
f. that Defendants violated the Fair Debt Collection Practices Act when they "utilized false information and a fraudulent representation, in the attempt to collect an invalid debt, of the legal status of the debt, the amount of the debt and threatening to take action that they could not legally pursue[;]"
g. that Defendants "conspired against the rights of the Plaintiff" in violation of a federal criminal statute;
h. that Defendants "willfully violated the rights of the Plaintiff under color of" state law, in violation of a federal criminal statute;
i. that Defendants "invaded the privacy rights of the Plaintiff" in violation of the Fourth Amendment and Plaintiff's substantive due process rights, and Alabama state tort law;
j. that Defendants "willfully and intentionally committed fraud by making a fraudulent representation to Plaintiff that she owes taxes to the state of Alabama, that she was liable for such taxes, that the tax lien Defendants placed was authorized by state law, and, as to Defendants Baxley and Crumbley, by representing that they could assist Plaintiff "but, instead, acted in substantial assistance of acts that were plainly in contravention to clearly established law[;]" and
k. that Defendants "willfully and intentionally inflicted severe emotional distress upon Plaintiff by perpetuating an illegal threat against Plaintiff's financial ability to pay for her home, utilities, insurance, food and clothing, causing Plaintiff to suffer distress beyond what a reasonable person is expected to endure, in violation of Alabama tort law."

Am. Compl. (Doc. 8) at 13-17.

II. DISCUSSION

Defendants move the court to dismiss Plaintiff's amended complaint under, inter alia, Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. Defs.' Mot. (Doc. 15) at 4-7. "[B]ecause a federal court is powerless to act beyond its statutory grant of subject matter jurisdiction, a court must zealously insure that jurisdiction exists over a case." Smith v. GTE Corp., 236 F.3d 1292, 1299 (11th Cir. 2001). Thus, a federal court "should inquire into whether it has subject matter jurisdiction at the earliest possible stage in the proceedings" and, "once a federal court determines that it is without subject matter jurisdiction, the court is powerless to continue." Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 410 (11th Cir. 1999).

A challenge asserting a lack of subject matter jurisdiction under Rule 12(b)(1) may take two distinct forms, commonly described by the Court of Appeals for the Eleventh Circuit as either a "facial" or a "factual" challenge to jurisdiction.

Facial attacks to subject matter jurisdiction require the court merely to look and see if the plaintiff's complaint has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion. Carmichael v. Kellogg, Brown & Root Servs., Inc., 572 F.3d 1271, 1279 (11th Cir. 2009). However, in a factual challenge to subject matter jurisdiction, a district court can "consider extrinsic evidence such as deposition testimony and affidavits." Id. In so doing, a district court is "free to weigh the facts" and is "not constrained to view them in the light most favorable" to the plaintiff. Id.

Houston v. Marod Supermarkets, Inc., 733 F.3d 1323, 1335-36 (11th Cir. 2013). For the reasons set forth below, no matter how Defendants' challenge to this court's subject matter jurisdiction is treated-whether construed as "facial" or "factual"-the motion is due to be granted and Plaintiff's Amended Complaint is due to be dismissed for lack of subject matter jurisdiction.

Defendants argue that this court lacks subject matter jurisdiction over this action based on the Tax Injunction Act (hereinafter "TIA"), 28 U.S.C. § 1341, and comity because an adequate state remedy was available to Plaintiff to challenge the Department's assessment of taxes against her. Defs.' Br. (Doc. 15) at 4. The TIA mandates that "[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. Defendants argue that the adequate state remedy available to persons like Plaintiff can be found in Alabama Code sections 40-2A-7(b)(5) and 40-2A-9(g). Defs.' Supp. Br. (Doc. 23-1) at 1. Although those statutes were recently amended, effective October 14, 2014, Defendants maintain that they were in effect at all times relevant to Plaintiff's Amended Complaint, which was filed prior to the effective date of the recent amendments. Moreover, Defendants assert, "the amendment of § 40-2A-7(b)(5) and repeal of § 40-2A-9(g) pursuant to Act 2014-146 do not substantively alter the state remedy available to taxpayers." Id. at 2.

The TIA "is not narrowly construed to only prohibit injunctive relief designed to prohibit tax collection, but is [instead] a broad restriction on federal jurisdiction in lawsuits seeking to impede the state's administration of its tax system." McCord v. I.R.S., 2003 WL 22429262, *2 (N.D. Ala. Oct. 3, 2003) (citing United Gas Pipe Line Co. v. Whitman, 595 F.2d 323, 326 (5th Cir. 1979)). In order for the TIA to bar federal jurisdiction, "the relief requested by the plaintiff [must] enjoin, suspend or restrain' a state tax assessment and the state [must] afford[] the plaintiff a plain, speedy and efficient remedy.'" Whitlow v. Underwood, No. 2:10-CV-966-MEF, 2011 WL 671577, at *2 (M.D. Ala. Feb. 7, 2011) (quoting Williams v. City of Dothan, 745 F.2d 1406, 1411 (11th Cir. 1984)). In this case, Plaintiff was assessed Alabama state income taxes for the years of 2010 and 2011. Am. Compl. (Doc. 8) at 3. Plaintiff now claims that Alabama's assessment of those taxes, and subsequent efforts to collect the unpaid taxes, has violated several of her constitutional and statutory rights. The relief requested by Plaintiff, including injunctive, declaratory judgment, and compensatory and punitive damages, would unquestionably "enjoin, suspend, or restrain" the State's ability to assess its taxes. As such, the first factor is plainly satisfied and the court must determine whether Alabama affords a "plain, speedy, and efficient remedy" for persons wishing to challenge a tax assessment. Underwood, 2011 WL 671577, at *3.

In general, for there to be a "plain, speedy and efficient remedy, " the state court must provide the taxpayer "a full hearing and judicial determination at which she may raise any and all constitutional objections to the tax." Colonial Pipeline Co. v. Collins, 921 F.2d 1237, 1244 (11th Cir. 1991) (quoting Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 514 (1981). "The plaintiff has the burden to show facts sufficient to overcome the jurisdictional bar of the Tax Injunction Act." Gibson v. Gains, 2006 WL 858336, *2 (11th Cir. April 4, 2006) (citing Smith v. Travis Cty. Educ. Dist., 968 F.2d 453, 456 (11th Cir. 1992)).

Courts have long recognized that Alabama Code sections 40-2A-7(b)(5) and 40-2A-9(g) suffice as adequate state remedies to preclude jurisdiction under the TIA. See, e.g., Gibson, 2006 WL 858336 at *3 (affirming district court's conclusion that § 40-2A-7(b)(5) is a "plain, speedy and efficient" remedy for purposes of the TIA); Whitlow, 2011 WL 671577 at *3; McCord, 2003 WL 22429262 at *2. At the time of the assessments entered against Plaintiff, § 40-2A-7(b)(5) allowed a taxpayer to appeal a final assessment to either the Administrative Law Division or to the Circuit Court of Montgomery County, Alabama. In addition, Alabama law permits a taxpayer to petition the Department of Revenue for a refund of "any overpayment of tax or other amount erroneously paid to the department or concerning any refund which the department is required to administer." Ala. Code 40-2A-7(c)(1). As with the procedure for appealing a final assessment, Alabama law permits a taxpayer whose petition for refund has been denied to appeal the denial to the Administrative Law Division or to the Circuit Court of Montgomery County. Plaintiff has not shown, and does not even argue, that the procedures for appealing a final assessment or for seeking a refund of amounts paid pursuant to the assessment would not afford her "a full hearing and judicial determination at which she may raise any and all constitutional objections to the tax." Colonial Pipeline Co., 921 F.2d at 1244.[3] Indeed, this court has previously recognized the authority of an Alabama Circuit Court to hear and consider constitutional issues whether in an appeal directly from a final assessment or on review of a prior determination by the Administrative Law Division. See Gibson v. Gains , Civ. No. 1:04-cv-910-MHT-SRW, Doc. 46 at 9 (Recomm. Of the Mag. J., Sept. 12, 2005), aff'd, 2006 WL 858336.

Plaintiff appears to argue that the TIA does not apply because "the attempt to collect taxes is, in actuality, in contravention to state law, and is an unauthorized act not present in current Alabama law." Pl.'s Resp. (Doc. 17) at 3. She maintains that "Defendants do not cite, nor could they cite, which portions of Alabama law that authorizes a tax levy procedure against a W-2 employee who is such under federal law, where the liability and responsibility of such matters are strictly imposed upon the employer under state law." Id. Additionally, Plaintiff insists that the "Alabama Department of Revenue did not, in this instance, issue a final assessment in accordance with state law, " but that, nevertheless, she has "disputed, in writing, the legitimacy of the procedure within the specified time period" and "[n]o procedure whatsoever was scheduled nor can one be shown, in compliance with state law...." Id. at 3-4.

As to Plaintiff's first point of contention, any argument that Alabama's efforts to assess and collect income taxes against her for 2010 and 2011 is actually "in contravention to state law" is clearly better left, as a matter of comity and efficiency, to be resolved in the state courts through the procedures above identified. Furthermore, Plaintiff's contentions that the Department did not issue a final assessment against her and that she has disputed the preliminary assessment she received in July, 2014, without any subsequent "procedure" being afforded "in compliance with state law, " are unavailing. First, Plaintiff has not shown that her written dispute of the legitimacy of the procedure followed by the Department is, in fact, compliant with Alabama law. The Amended Complaint and Plaintiff's response to the motion to dismiss indicate that Plaintiff's written objection was in response to the letter delivered to her mother's Alabama address which warned that the Department would issue a preliminary assessment in the event that she did not pay the amount the Department claimed she owed for 2011. Plaintiff does not describe what lawful procedure the State was to follow in response to her written objection to this letter, and has cited no authority for any proposition that the Department has failed to follow state law in relation to her written response. Indeed, Plaintiff's allegations do not reliably support any contention that the Department of Revenue has issued any assessment or taken any other action against Plaintiff with regard to her 2011 income taxes, which was the subject of the letter she received on July 2, 2014, and which caused her to submit the written correspondence she describes in the amended petition.

As to Plaintiff's claim that the Department never issued a Final Assessment prior to undertaking collection measures like the lien, the court finds that, in order to fully address such assertion, it is necessary to resort to the extrinsic evidence provided by Defendants in response to this court's Order (Doc. 26) of January 29, 2015.[4] Defendants' submissions make clear that, contrary to Plaintiff's allegations, the Department indeed did issue a final assessment prior to its placing any lien on Plaintiff's credit report. In fact, the Department issued Plaintiff a letter (dated August 28, 2013) advising Plaintiff of the amount it concluded Plaintiff owed in income taxes for 2010 ( see Doc. 27-1 at 1), the Department then issued a Notice of Preliminary Assessment (dated October 29, 2013) concerning the 2010 income taxes owed ( see Doc. 27-1 at 2-6), and then issued a Notice of Final Assessment of Individual Income Tax (dated January 6, 2014) concerning the 2010 income taxes owed ( see Doc. 27-1 at 7-9). After the Notice of Final Assessment, the Department then issued its "Notice of Intent to Offset Federal Income Tax Refund" (dated March 18, 2014), indicating its intent to seek an offset from Plaintiff's federal income tax refund, pursuant to 26 U.S.C. § 6402(e), in the amount owed by Plaintiff for income taxes in 2010 ( see Doc. 27-1 at 10-11). Next, on July 1, 2014, the Department issued a Certificate of Lien for Taxes and corresponding Taxpayer Notice of Lien, evidencing its filing of a lien in Montgomery County ( see Doc. 27-1 at 12-13). Finally, on July 8, 2014, the Department issued its Final Notice Before Seizure, explaining its intent to begin a collections action related to the 2010 income tax debt ( see Doc. 27-1 at 15). It is evident, therefore, that, not only did the Department issue Plaintiff a Final Assessment, but that the lien Plaintiff alleges she discovered on her credit report in July, 2014, was related to the Department's 2010 income tax assessment, not the letter concerning the Department's 2011 notice, as suggested by Plaintiff. See Amend. Compl. (Doc. 8) at 5, 9; Pl.'s Resp. (Doc. 17) at 3-4.

Plaintiff's response to the documents submitted by Defendants and described in this Recommendation is consistent with her overarching theory that this is all the result of a conspiracy. In short, Plaintiff submits that the documents are not authentic and that Defendants have perpetrated a fraud upon the court. Pl.'s Supp. Resp. (Doc. 28) at 5-6. However, Plaintiff's conclusion in this regard appears predicated in large part on her failure to comprehend this court's orders, as well as her failure to appreciate the narrow issue before this court. To the first point, the undersigned reminds Plaintiff that the court's Order (Doc. 26) of January 29, 2015, ordered Defendants to submit certain documents to the court for in camera review. Defendants fully complied with this order and submitted numerous documents responsive to the court's order. From this pool of documents, the undersigned extracted those documents considered necessary to fully resolve the jurisdictional issue posed by Defendants' motion to dismiss and Plaintiff's response thereto and ordered that they be provided to Plaintiff so that she may file a supplemental response to the motion to dismiss. See Order (Doc. 27). The undersigned did not make available to Plaintiff all of the documents submitted by Defendants because they were not all germane to the court's jurisdictional inquiry. Indeed, the undersigned clarified in that Order that those documents not made available to Plaintiff would be destroyed. Plaintiff is therefore misguided in her repeated charge that Defendants' documents are incomplete or somehow fail to evidence matters she deems material in this case. See, e.g., Pl.'s Supp. Resp. (Doc. 28) at 1-2 ("Defendants could be [sic] no means explain how they acquired the Plaintiffs [sic] name, address, social security number, income and evidence of tax liability with the current documentation they submit."); id. at 4 ("Being that there is absolutely no such documentation before the Court because Defendants are utterly unable to produce such, it must also then be seen that these documents are facially fraudulent by default."). In other words, Plaintiff infers what Defendants have failed to produce at her own peril because she does not know the entirety of Defendants' production, and she is therefore ill-advised to charge Defendants with committing fraud upon the court when she is not fully informed on the matter.

To the second point-Plaintiff's failure to appreciate the limited nature of this court's inquiry-the undersigned will endeavor to offer a few observations. Plaintiff's pleadings indicate, from the beginning, a preoccupation with how and why Defendants have decided to pursue recovery of taxes they assert she owes. See, e.g., Am. Compl. (Doc. 8) at 3-4; Pl.'s Supp. Resp. (Doc. 28) at 2-3, 4. As previously noted, she attributes Defendants' actions to a conspiracy motivated by her fiance's actions in Tennessee. For Plaintiff, the failure of Defendants to satisfactorily answer her questions about how they focused their attention on her, and the omission of documents evidencing that circumstance in the records made available to her, presents a sort of "confirmation bias" for the conspiracy theory she has articulated in her papers. But why and how the Department of Revenue has focused on Plaintiff is simply immaterial to this court's present inquiry. Rather, this court must first satisfy itself that it may exercise subject matter jurisdiction in this matter despite the dictates of the TIA. As such, the court is not troubled by the purported lack of records decried by Plaintiff because, contrary to Plaintiff's apparent belief, the court did not order Defendants to turn over all documents relating to any investigation of Plaintiff's income tax liability and, more to the point, such documents are not relevant to this court's limited jurisdictional inquiry. This is not to minimize those issues which legitimately have been raised by Plaintiff. There is perhaps a legitimate question whether Plaintiff should be subject to income taxation in Alabama for 2010 and 2011.[5] However, that is a question that, pursuant to applicable federal law, is plainly due to be decided in Alabama's state courts.[6]

In view of the evidence described in this Recommendation, the undersigned concludes that, consistent with Alabama law, the Department of Revenue endeavored to notify Plaintiff of its assessment that she owes income taxes to Alabama for 2010 and 2011.[7] Coupled with the undersigned's finding that Alabama law affords taxpayers an adequate "plain, speedy, and efficient remedy" for contesting such assessments, including raising any constitutional objections to such assessments, the undersigned concludes that this court lacks subject matter jurisdiction over the claims in Plaintiff's Amended Complaint and that, therefore, Defendants' motion to dismiss the Amended Complaint pursuant to Rule 12(b)(1) is due to be granted.

IV. CONCLUSION

For the reasons stated above, it is the RECOMMENDATION of the Magistrate Judge that Defendants' Motion to Dismiss (Doc. 15) be GRANTED and that this case be DISMISSED, pursuant to Federal Rule of Civil Procedure Rule 12(b)(1), for lack of subject matter jurisdiction.

It is further

ORDERED that the parties are DIRECTED to file any objections to the said Recommendation on or before April 14, 2015. Any objections filed must specifically identify the findings in the Magistrate Judge's Recommendation to which the party is objecting. Frivolous, conclusive, or general objections will not be considered by the District Court. The parties are advised that this Recommendation is not a final order of the court and, therefore, it is not appealable.

Failure to file written objections to the proposed findings and recommendations in the Magistrate Judge's report shall bar the party from a de novo determination by the District Court of issues covered in the report and shall bar the party from attacking on appeal factual findings in the report accepted or adopted by the District Court except upon grounds of plain error or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 1982); s ee Stein v. Reynolds Securities, Inc., 667 F.2d 33 (11th Cir. 1982); s ee also Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) ( en banc ) (adopting as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981).


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