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HP Distribution, LLC v. Internal Revenue Service

United States District Court, D. Kansas

October 11, 2017




         This matter comes before the court upon defendant Internal Revenue Service (“IRS”)'s Motion to Dismiss for Lack of Jurisdiction (Doc. 8). For the reasons explained below, the motion is granted.

         Factual Background

         HP Distribution, LLP was a commercial transportation company formed by Craig Cunningham in 2003. Craig Cunningham owned HP Distribution, LLP, and his wife, Kim, became a partner in 2009 or 2010. HP Distribution, LLP incurred IRS tax liabilities and fines from the Federal Motor Carrier Safety Administration (“FMCSA”). In 2012, HP Distribution, LLP ended its operations. That same year, Craig's son, Tanner Cunningham, and Kim Cunningham formed plaintiff HP Distribution, LLC. The FMCSA, after determining HP Distribution, LLC was HP Distribution, LLP's reincarnation, ordered HP Distribution, LLC to pay HP Distribution, LLP's fines. HP Distribution, LLC has no outstanding tax liabilities.

         To collect HP Distribution, LLP's unpaid tax liabilities, defendant is attempting to determine whether plaintiff is a successor-in-interest to HP Distribution, LLP and is liable as a transferee for HP Distribution, LLP's unpaid taxes. To make this determination, defendant issued and served summonses to Allen Buchholz Insurance (“Buchholz”) in Olathe, Kansas, and Bibby Financial Services (“Bibby”) in Kennesaw, Georgia, in November and December 2016. These summonses request documents that may demonstrate plaintiff uses the same assets as HP Distribution, LLP. Defendant did not provide notice of the summonses to HP Distribution, LLP or plaintiff.

         Plaintiff brought this Motion to Quash Third-Party Summonses because plaintiff has no outstanding tax liabilities and the IRS failed to notify plaintiff of the summonses. (Doc. 4). Defendant argues in its Motion to Dismiss for Lack of Subject-Matter Jurisdiction: plaintiff failed to follow Federal Rule of Civil Procedure 4(i) when filing its motion because it failed to obtain and serve the United States with a summons; the court lacks jurisdiction over the Bibby Financial Services summons; the United States has not waived its sovereign immunity; and plaintiff lacks standing under 26 U.S.C. § 7609 to file its motion. (Doc. 9).

         Identifying the Proper Parties

         As a preliminary matter, the court finds that the United States of America should be substituted as the proper defendant. The IRS is not subject to suit-any suit brought against it is therefore deemed to be a suit brought against the United States. Abell v. Sothen, 214 Fed.Appx. 743, 750-51 (10th Cir. 2007) (citing Posey v. U.S. Dep't. of the Treasury-Int'l Revenue Ser., 156 B.R. 910, 917 (W.D.N.Y. 1993)).

         Plaintiff Should Have Complied with the Federal Rules and Served Defendant

         Next, the court notes that defendant was never served with a summons. Rule 4(i)(1)(A) states that a party suing the United States must deliver the complaint and summons to the United States Attorney for the district where the action is brought and to the United States Attorney General in Washington, D.C. Fed.R.Civ.P. 4(i)(1)(A)(i-ii). There is no indication in the court's records that plaintiff obtained a summons or served it on the United States Attorney or the Attorney General.

         Plaintiff argues it satisfied the notice requirements under 26 U.S.C. § 7609(b)(2)(B) by mailing its petition to the persons summoned (Allen Buchholz Insurance and Bibby Financial Services) and to the office where the Secretary of Treasury directed notice be sent (IRS Revenue Officer Anthony Ingo). However, when a party is entitled to notice, IRS form 6639 instructs plaintiffs to serve their petitions to quash upon the appropriate parties under Rule 4. This indicates the statutory requirements supplement the Rules of Civil Procedure instead of supplanting them.

         The case law does not clearly establish whether a party must comply with the Federal Rules in addition to § 7609's requirements. See, e.g., Robert S. v. United States, 2016 WL 7046851, at *3 (W.D. Wis. Dec. 2, 2016) (discussing differences within the Seventh Circuit.) There also is no consistent practice within this district. Courts in this district have decided several motions to quash third-party summonses where the plaintiffs did not request or serve a summons. See, e.g., HP Distribution, LLC et. al v. United States, No. 14-237-JAR (D. Kan. June 1, 2016) (decided on the merits); Manke et. al v. United States, No. 12-1086-EFM-KGG (D. Kan. Dec. 7, 2012) (case dismissed for failure to answer show cause order); Beat v. United States, No. 4-1062-WEB-KMH (D. Kan. Dec. 6, 2004) (dismissed following joint motion to dismiss); Hennessy v. United States, No. 98-110-MLB-KMH (D. Kan. Jan. 4, 1999); Renoe v. United States et. al., No. 98-212-KHV (D. Kan. Oct. 14, 1998) (motion voluntarily withdrawn by movants); Pflum v. United States, No. 97-4029-RDR (D. Kan. Aug. 19, 1997), aff'd on merits by 125 F.3d 862 (10th Cir. 1997); Ewy v. United States, No. 94-2342-KHV (D. Kan. Oct. 28, 1994); Britling v. Int'l Revenue Serv., No. 94-207-KMH (D. Kan. Oct. 19, 1994); Renner v. United States, No. 93-226-GLR (D. Kan. July 28, 1994). None of the orders in these cases discussed the plaintiff's failure to obtain and serve a summons.

         Likewise, the court has heard many cases where the plaintiffs did serve a summons on the defendant. See, e.g., Lange v. Int'l Revenue Serv., No. 5-cv-2151-KHV-JPO (D. Kan. Aug. 4, 2005) (dismissed for untimely filing); Beat v. United States, No. 5-1008-MLB-DWB (D. Kan. Mar. 16, 2005) (dismissed following defendant's voluntary motion to dismiss case); Alexander v. Int'l Revenue Serv., Comm'r Everson et. al., No. 5-1129-JTM-DWB (D. Kan. Aug. 23, 2005) (dismissed under sovereign immunity); Krause v. United States, No. 5-1243-WEB-DWB (D. Kan. Dec. 20, 2005) (consolidated under No. 5-mc-113-WEB-DWB and dismissed following joint stipulation of voluntary dismissal); Bandy v. United States et. al., No. 7-1386-MLB-DWB (D. Kan. Apr. 24, 2008) (dismissed in part for untimely filing; remaining issues decided on the merits); Gangi et. al. v. United States, No. 10-1138-EFM-KGG (D. Kan. Feb. 25, 2011) (decided on the merits). Because the court dismisses this case on other grounds, this court does not need to address the adequacy of plaintiff's filing. But the court notes that it is, at the very least, a best practice to serve the defendant according to Rule 4.

         The Court Lacks Jurisdiction Over ...

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