Mires v. United States

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
October 31, 2006
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

ARTHUR W . M IRES, Trustee of the
M onte H Goldman Revocable Living
Trust,

Plaintiff - Appellant,
v. No. 05-6186
U N ITED STA TES O F A M ER ICA,

Defendant-Appellee.

A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
FO R TH E W ESTERN DISTRICT O F O K LAH O M A
(D .C. NO. CIV-03-982-R)

M argaret K. M yers (Earl D. M ills with her on the briefs), The M ills Law Firm,
Oklahoma City, Oklahoma, for Plaintiffs-Appellants.

Joan I. Oppenheimer, United States D epartment of Justice (Eileen J. O’Connor,
Assistant Attorney General; John C. Richter, United States A ttorney; Richard
Farber, United States D epartment of Justice, with her on the brief) for D efendant-
Appellee.

Before KELLY, HOL LOW A Y, and M cCO NNELL, Circuit Judges.

M cCO NNELL, Circuit Judge.
 W hen the estate of Alfred Goldman (“the Estate”) filed this tax refund suit

in July 2003, it had neither paid the taxes it was disputing nor sought

administrative relief before the Internal Revenue Service. The United States

accordingly sought dismissal under Rule 12(b)(1) of the Federal Rules of Civil

Procedure for lack of subject matter jurisdiction. Rather than suffer dismissal, the

Estate paid the taxes, filed a claim before the IRS, and, with the government’s

consent, amended its complaint to allege compliance with these two jurisdictional

prerequisites. The district court then considered the pending cross-motions for

summary judgment and ruled against the Estate.

After losing on the merits, the Estate now appeals from the district court’s

judgment, arguing that the judgment is void because the jurisdictional defect that

existed when the suit began was incurable. W e disagree and hold that under the

circumstances of this case, the Estate cured the jurisdictional defect. W e

therefore AFFIR M the district court’s judgment.

I. Standard of Review

The Estate does not challenge the merits of the district court’s order.

Rather, it asks us to vacate that order on the grounds that the court lacked subject

matter jurisdiction. W hether a district court had subject matter jurisdiction is a

question of law that w e review de novo. Estate of Trentadue ex rel. Aguilar v.

United States, 397 F.3d 840, 852 (10th Cir. 2005).

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II. Stipulated M aterial Facts and Procedural H istory

This case stems from an earlier law suit between the two scions to a grocery

store shopping cart fortune. Alfred and M onte Goldman, both now deceased,

were the only children of S. N. Goldman. They inherited their father’s fortune

through various trusts and business enterprises. The inheritance provided for

equal shares, and the brothers considered themselves equal owners of the various

businesses.

One of their businesses was Primco M anagement Company, an Oklahoma

corporation whose stock was held equally by the brothers’ revocable living trusts.

Primco was the nerve center for the Goldmans’ other businesses: it performed

administrative services such as bookkeeping, filing tax returns, collecting rent,

and hiring attorneys and accountants for the other entities.

Following their parents’ deaths, M onte and Alfred’s relationship

deteriorated until Alfred eventually appropriated nearly all of their

assets— approximately $23 million— for his personal use. In April 1990, M onte

responded by suing Alfred and various Primco employees in Oklahoma state

court. The parties settled that suit in July 1994 after incurring more than $2.5

million in legal fees and $352,500 in accounting fees, all of which Primco paid.

Primco listed those fees as deductions on its 1990, 1991, and 1992 tax returns.

The IRS disallowed the lion’s share of those deductions. This reduced the

amount of distributable net losses that Alfred Goldman could claim as a Primco

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shareholder on his 1990–92 tax returns and led to a corresponding increase in

Alfred’s personal federal income tax liability. In 1994, Alfred Goldman filed

amended federal tax returns for those years and claimed as personal deductions

the attorney’s fees and accounting fees incurred in the state court litigation

against his brother. The IRS denied those deductions and assessed additional

taxes accordingly. Alfred then passed away.

Instead of paying the additional taxes, the Estate filed this suit in 2003

challenging the IRS’s disallowance of those deductions. 1 In response to the

government’s motion to dismiss for lack of subject matter jurisdiction, the Estate

took the only possible step to prevent dismissal: it paid the taxes assessed against

M r. Goldman for 1990–92 and petitioned the IRS for a refund on M r. Goldman’s

behalf. Three days later, the IRS disallowed the Estate’s claim. The Estate then

moved for leave to file an amended complaint and joint stipulation of facts. The

district court granted the motion, and the complaint and stipulation were amended

as follow s:

1. On or about October 22, 2004, Plaintiff Julian P. Kornfeld,
Personal Representative for the Estate of Alfred D. Goldman, paid
federal income taxes assessed against Alfred D. Goldman for the tax

1
The district court said that “[t]he Complaint was initially filed on behalf of
six trusts established for the benefit of M onte Goldman, five trusts established for
the benefit of A lfred Goldman, and the Estate of A lfred Goldman. As the case
has progressed, it has become apparent that the Plaintiffs are now asserting claims
for refund only on behalf of the estate of Alfred Goldman.” Appellant’s App. 47.
The parties do not contest this finding on appeal.

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 years 1990, 1991, and 1992, in the amounts of $564,654.44,
$342,866.03 and $251,044.35, respectively.
2. On or about October 22, 2004, Plaintiff Julian P. Kornfeld,
Personal Representative for the Estate of Alfred D. Goldman, filed
[Form] 1040X, seeking a refund of the income tax assessments paid
for the tax years 1990, 1991, and 1992.
3. By letter dated October 25, 2004, the Internal Revenue
Service disallowed the Claims for Refund filed on behalf of Alfred
D. Goldman.
4. This Court can now exercise jurisdiction over the refund
action of Alfred D. Goldman and his Estate in accordance with 28
U.S.C. Section 1346(a)(1).
5. Counsel for Defendant does not object to the amendment of
the Complaint or the Joint Stipulation of Facts.

Appellee’s Supp. App. 9–10. The district court’s order granting summary

judgment in favor of the United States referred to the stipulated amendment:

The Plaintiffs allege that the alleged jurisdictional defect has
been “cured” by the payment of the disputed taxes, and have filed an
“Amendment to Stipulation of M aterial Facts Not in Dispute”
reciting that the taxes assessed against Alfred D. Goldman have now
been paid in full. The G overnment does not dispute the Plaintiffs’
assertion that the assessed taxes have now been paid, and thus has
cured the asserted jurisdictional defect.

Appellant’s App. 63–64. By all accounts, the Estate was satisfied that the district

court had jurisdiction.

The Estate adhered to this position until the district court entered judgment

on the merits in favor of the United States and denied the Estate’s Rule 60(b)(2)

motion for reconsideration based on allegedly newly discovered evidence. W hen

the district court denied that motion, the Estate appealed to this Court and

asserted for the first time that the district court’s judgment was void because (1)

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the court lacked jurisdiction when the suit began, and (2) subsequent events could

not cure that jurisdictional shortcoming.

III. Discussion

Few tenets of federal jurisprudence are more firmly established than the

principle that “federal courts . . . are courts of a limited jurisdiction.” Turner v.

Bank of N. Am ., 4 U.S. (4 Dall.) 8, 8 (1799). “They possess only that power

authorized by Constitution and statute . . . .” Kokkonen v. Guardian Life Ins. Co.

of Am ., 511 U.S. 375, 377 (1994). To ensure its Article III power is exercised

properly, a federal court must, “in every case and at every stage of the

proceeding, satisfy itself as to its own jurisdiction.” Citizens Concerned for

Separation of Church and State v. City and County of Denver, 628 F.2d 1289,

1301 (10th Cir. 1980). So w eighty is this concern that “a litigant generally may

raise a court’s lack of subject-matter jurisdiction at any time in the same civil

action”— even on appeal, as the Estate does here. Kontrick v. Ryan, 540 U.S. 443,

455 (2004); see also Prairie Band of Potawatomi Indians v. Pierce, 253 F.3d

1234, 1240 (10th Cir. 2001) (“[S]o long as a case is pending, the issue of federal

court jurisdiction may be raised at any stage of the proceedings either by the

parties or by the court on its own motion.” (internal quotation marks omitted)).

The Estate invoked the district court’s subject matter jurisdiction under 28

U.S.C. § 1346(a)(1), which grants district courts original jurisdiction in “[a]ny

civil action against the United States for the recovery of . . . any sum alleged to

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have been excessive . . . under the internal-revenue laws.” Id. Two prerequisites

must be met before a district court has subject matter jurisdiction under §

1346(a)(1). First, a plaintiff must have fully paid the challenged tax assessment.

Flora v. United States, 357 U.S. 63, 75–76 (1958); Ardalan v. United States, 748

F.2d 1411, 1413 (10th Cir. 1984). Second, a plaintiff must have filed a valid

refund claim with the IRS, and the IRS must have denied the claim or six months

must have passed since the claim was filed with no IRS response. 26 U.S.C. §§

6532(a)(1), 7422(a).

The Estate satisfied these two requirements after filing suit and presumed

that it had cured the obvious jurisdictional defect by doing so. Now, after losing

on the merits, the Estate argues based on M cNeil v. United States, 508 U.S. 106

(1993), that it could not have cured the defect. In M cNeil, the Supreme Court

affirmed the dismissal of a pro se prisoner’s Federal Tort Claims Act complaint

because the prisoner exhausted his administrative remedies after filing his

complaint. See id. at 107–09. The Estate suggests that M cNeil forecloses the

possibility of curing a lack of subject matter jurisdiction during a suit’s pendency.

W e do not read M cNeil so broadly. The Supreme Court expressly stated

that it “assume[d] that . . . nothing done by petitioner after the denial of his

administrative claim . . . constituted the commencement of a new action.” Id. at

110. That statement alone distinguishes this case from M cNeil. After the IRS

denied M r. Goldman’s refund claim, he sought permission to file— and, with the

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government’s consent and district court’s permission, did file— an amended

complaint that alleged completion of the jurisdictional prerequisites. Appellee’s

Supp. App. 9–10.

Those facts make this case more analogous to M athews v. Diaz, 426 U.S.

67, 70 (1976), which concerned the constitutionality of statutory residency

requirements for M edicare eligibility. One of the M edicare statutes, 42 U.S.C. §

405(g), “establishe[d] [the] filing of an application [for M edicare benefits] as a

nonwaivable condition of jurisdiction.” Id. at 75. One plaintiff filed the required

application only “after he was joined in the action.” Id. The Supreme Court

“ha[d] little difficulty” disposing of the government’s motion to dismiss for

failure to exhaust administrative remedies, because the plaintiff “satisfied this

condition while the case was pending in the District Court.” Id. The Court

explained:

A supplemental complaint in the District Court would have
eliminated this jurisdictional issue; since the record discloses, both
by affidavit and stipulation, that the jurisdictional condition was
satisfied, it is not too late, even now, to supplement the complaint to
allege this fact. Under these circumstances, we treat the pleadings as
properly supplemented by the Secretary’s stipulation that Espinosa
had filed an application.

Id. These same considerations compel us to hold that M r. Goldman’s

representative cured the jurisdictional deficiency while his suit was pending by

paying the outstanding taxes, seeking administrative relief from the IRS, and

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amending his complaint (with the government’s consent and district court’s

permission) to allege satisfaction of the jurisdictional prerequisites.

W e recognize that “[t]he existence of federal jurisdiction ordinarily

depends on the facts as they exist when the complaint is filed.” Newman-Green,

Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830 (1989). But like most rules, “this one

is susceptible to exceptions.” Id. One such exception arises w hen a district court

allow s an amendment by the parties to cure an exhaustion problem— the precise

situation in Diaz, 426 U.S. at 75; Duplan v. Harper, 188 F.3d 1195, 1199–1200

(10th Cir. 1999); and here.

Of course, this exception does not mean that plaintiffs should habitually

neglect Section 1346(a)(1)’s mandates before filing suit. Like the Supreme Court,

we expect that in future cases, “the risk that a lawyer will be unable to understand

the exhaustion requirement is virtually nonexistent.” M cNeil, 508 U.S. at 113.

W e hold only that, under the circumstances of this case, the Estate cured the

obvious lack of subject matter jurisdiction present when the suit began.

Finally, though “lack of federal jurisdiction cannot be waived or overcome

by an agreement of the parties,” M itchell v. M aurer, 293 U.S. 237, 244 (1934),

the Estate’s arguments impress us as particularly specious. The Estate’s attorneys

represented to the district court (in a pleading subject to Rule 11 of the Federal

Rules of Civil Procedure) that it could “now exercise jurisdiction over the refund

action of Alfred D. Goldman and his Estate in accordance with 28 U.S.C. Section

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1346(a)(1)” because M r. Goldman’s representative had paid the taxes and filed

for a refund. Appellee’s Supp. App. 10. Because subject matter jurisdiction is a

question of law, appellants are not judicially estopped from advocating the

diametrically opposite position before this Court. See Kaiser v. Bowlen, 455 F.3d

1197, 1204 (10th Cir. 2006). But a heavy dose of skepticism is in order when,

after losing on the merits, a party appeals and reverses course on a legal position

it successfully maintained in the district court.

W e A FFIR M the judgment of the district court.

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