PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 08-2655
___________
JOANNE R. SCHEAFNOCKER,
Appellant
vs.
COMMISSIONER OF INTERNAL REVENUE SERVICE
___________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 2-08-cv-00278)
District Judge: The Honorable Arthur J. Schwab
___________
ARGUED MAY 19, 2010
BEFORE: FUENTES, HARDIMAN,
and NYGAARD, Circuit Judges.
(Filed April 19, 2011 )
___________
William C. Kaczynski, Esq. (Argued)
1008 Manor Complex
564 Forbes Avenue
Pittsburgh, PA 15219
Counsel for Appellant
Kathleen E. Lyon, Esq. (Argued)
Teresa E. McLaughlin, Esq.
United States Department of Justice Tax Division
950 Pennsylvania Avenue, NW
PO Box 502
Washington, DC 20044
Henry C. Darmstadter, Esq.
Yonatan Gelblum, Esq.
United States Department of Justice
Tax Division, Civil Trial Section
P. O. Box 683
Ben Franklin Station
Washington, DC 20044
Counsel for Appellee
___________
OPINION OF THE COURT
___________
PER CURIAM.
Joanne Scheafnocker appeals the District Court=s order
dismissing her complaint, on a finding that her wrongful levy
2
claim is time-barred. She raises procedural due process issues
because she did not receive any notice that the IRS had levied
funds she held jointly with her ex-husband. We conclude that
Scheafnocker has sufficiently pleaded a constitutional claim
with a distinct basis for jurisdiction. Therefore, we will vacate
the District Court‟s order, and remand the cause for it to
consider the merits of her due process claim.
I.
The merits of Scheafnocker‟s wrongful levy claim are
undeveloped because the time-bar issue has been the focus of
review in every instance. Therefore, we briefly recite
background information provided in the complaint, along with
the procedural history of the case.1
Appellant Joanne Scheafnocker and her ex-husband Fred
Scheafnocker divorced in 1983. Joanne Scheafnocker filed a
child support case in Texas state court, where Fred
Scheafnocker lives. In 1988, Joanne placed a jointly issued
check, the proceeds from the sale of their marital home, in a
certificate of deposit from Equibank in North Huntingdon,
Pennsylvania. The certificate of deposit, issued in her name and
that of her ex-husband, was to be left untouched pending
settlement of the child support case.2 From the record, it is
apparent that she later moved to California.
1
We accept as true all of the allegations contained in the
complaint and draw reasonable inferences in favor of the
plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per
curiam).
2
The certificate of deposit bore the following notation: “Our
3
The record also states that on October 7, 2002, the
Internal Revenue Service assessed trust fund recovery penalties
against Fred Scheafnocker and sent him a Notice to Levy for his
failure to turn over taxes that he withheld from employees of his
business in Texas. The government levied the funds jointly held
by Fred and Joanne Scheafnocker in the North Huntingdon bank
on May 30, 2003. Approximately fourteen months later, in July
2004, Joanne Scheafnocker attempted to make a deposit into the
account to “keep the account active,” discovering then that the
funds were gone and that the account was closed. She learned
of the levy at this time.3 The government admits that it never
sent Joanne Scheafnocker any notice of the levy.
Joanne Scheafnocker filed pro se an IRS Form 911 for
taxpayer assistance in August 2004. The Taxpayer Advocate
denied the claim as time-barred on January 3, 2005. On or about
March 29, 2005, Scheafnocker filed pro se a “Petition for Lien
or Levy Action” with the Tax Court, which dismissed her claim
on May 31, 2005 for lack of jurisdiction. In that petition, she
terms - to be held in lieu of Texas court C.S. case resolution.
J.S.” The record does not explain why the child support issue
has remained unresolved for such a protracted period of time.
3
In her complaint, Scheafnocker states that she attempted to
make a deposit two years after the levy. The appellate record
corrects this time-frame to fourteen months. This error does not
materially alter her claim. Her brief also explains that she
contacted the bank at that time to make a deposit of $100 on the
account, mindful of an earlier notice she had received from the
Bank advising her that inactive accounts risk forfeiture to the
Commonwealth of Pennsylvania.
4
stated that the government failed to provide her with any notice
of the levy. Scheafnocker then filed pro se, on October 4, 2005,
a complaint in the District Court for the Eastern District of
California, where she resides. In the pro se civil cover sheet,
she describes her claim as a “violation of due process rights
under Fifth and Fourteenth Amendment [sic].” She alleges
“[p]laintiff, as co-owner, was never notified either by IRS or
bank, denying any opportunity to make timely objection.” In her
prayer for relief, she states the following.
1. That this Court provide
opportunity for Plaintiff to show all
evidence and proof; 2. That
judgment be entered in favor of
Plaintiff and against Defendant; 3.
That entire amount of CD at time of
seizure, plus bank interest from that
day to the present, be returned to
Plaintiff; 4. That additional interest
accrue for non-payment over 30
days from judgment; 5. That
Plaintiff be awarded reimbursement
for all related legal costs such as
filing, and other further relief as
this jury and court deem just and
proper.
Complaint 3, ECF No. 1.
The government filed a motion to dismiss asserting inter
alia that the District Court lacked jurisdiction because the suit
(interpreted as a wrongful levy claim brought under 26 U.S.C. '
5
7426) was time-barred, and because the government had
sovereign immunity from her claims. Upon the recommendation
of the Magistrate Judge, the District Court ruled that
Scheafnocker=s wrongful levy claim could be regarded as a tax
refund claim and, as such, deemed timely filed.4 The District
Court then ordered the government to file an answer to
Scheafnocker=s suit. However, shortly after the government
filed an answer, the Supreme Court held in an unrelated case
that wrongful levy claims cannot be construed as refund claims.
See EC Term of Years Trust v. United States, 550 U.S. 429
(2007). As a result, the District Court vacated its order.
The government then filed a motion for judgment on the
pleadings, reiterating its general jurisdictional arguments and
asserting that the Eastern District of California was not the
proper venue for this suit. On February 4, 2008, the Magistrate
Judge issued findings and a recommendation to deny the motion
on the basis that, under precedent from the Court of Appeals for
the Ninth Circuit, wrongful levy claims are subject to equitable
tolling. See Supermail Cargo, Inc. v. United States, 68 F.3d
1204, 1206-1207 (9th Cir. 1995). However, on February 19,
2008, the Magistrate Judge vacated this order stating the
following.
[T]he court stands by its findings in
the February 4, 2008, findings and
recommendations, but vacates them
insofar as they recommend further
adjudication on its merits. The
4
The statute of limitations for a tax refund claim is two years
from the time the tax was paid. 26 U.S.C. ' 6511(a).
6
merits of this action shall be
adjudicated in the appropriate
district court pursuant to 28 U.S.C.
' 1402(c). This action is
transferred to the United States
District Court for the Western
District of Pennsylvania.
Order 5, ECF No. 52.5
Upon transfer of the case to the District Court for the
Western District of Pennsylvania, the government filed a motion
to dismiss for lack of jurisdiction, arguing that the claim was
time-barred. The District Court granted the government=s
motion, ruling that equitable tolling of a wrongful levy claim is
not permitted. See Becton Dickinson and Co. v. Wolckenhauer,
215 F.3d 340 (3d Cir. 2000).
II.
Scheafnocker does not challenge our opinion in Becton,
which prohibits equitable tolling of wrongful levy claims
brought under section 7426. See id. Instead, based upon the law
of the case doctrine, she argues that the District Court erred by
failing to apply Supermail, which permits equitable tolling.
5
28 U.S.C. ' 1402(c): “Any civil action against the United
States under subsection (e) of section 1346 of this title may be
prosecuted only in the judicial district where the property is
situated at the time of levy, or if no levy is made, in the judicial
district in which the event occurred which gave rise to the cause
of action.”
7
Scheafnocker also raises a due process claim arising from a lack
of notice. The law of the case argument is unavailing, but we do
find that Scheafnocker has sufficiently pleaded a due process
claim for which the District Court has jurisdiction.
A.
“The „law of the case . . . doctrine posits that when a
court decides upon a rule of law, that decision should continue
to govern the same issues in subsequent stages in the same
case.‟” Feesers, Inc. v. Michael Foods, Inc., 591 F.3d 191, 207
(3d Cir. 2010) (quoting Arizona v. California, 460 U.S. 605,
618 (1983)). We have a long history of adherence to the law of
the case doctrine as a means of promoting not only finality,
consistency and judicial economy, but also comity with other
courts. See, e.g., Gulf Research & Development Co. v. Leahy,
193 F.2d 302, 304 (3d Cir. 1952). The Supreme Court has also
directed that although “[a] court has the power to revisit prior
decisions of its own or of a coordinate court in any circumstance
. . . as a rule courts should be loathe to do so in the absence of
extraordinary circumstances such as where the initial decision
was „clearly erroneous and would work a manifest injustice.‟”
Christianson v. Colt Industries Operating Corp., 486 U.S. 800,
817 (1988) (quoting Arizona v. California, 460 U.S. at 618 n. 8).
When a magistrate judge has been directed by a district
court to conduct hearings and issue a report and
recommendation, such findings do not carry the force of law
until accepted by the district court. Continental Cas. Co. v.
Dominick D'Andrea, Inc., 150 F.3d 245, 250 (3d Cir. 1998).
Here, the Magistrate Judge issued the findings and
recommendation on February 4, 2004. Fifteen days later, before
8
the District Court ruled on it, the Magistrate Judge vacated the
findings and recommendation and transferred the case.6 This
makes it clear to us that there is nothing to which the District
Court for the Western District of Pennsylvania owed any
deference. The Magistrate Judge=s order does contain some
confusing language, to wit: “the court stands by its findings in
the February 4, 2008, findings and recommendations.” Order 5,
ECF No. 52. These words, however, do not transform the
Magistrate Judge=s unreviewed and ultimately vacated
recommendation into the law of the case.7 Accordingly, with
respect to Scheafnocker=s wrongful levy claims, we find no error
in the District Court=s reliance upon Becton rather than
Supermail on the issue of whether equitable tolling is available
in wrongful levy claims brought under section 7426.8
6
The Magistrate Judge is empowered to issue the transfer order,
which is non-dispositive, without the approval of the District
Court. 28 U.S.C. ' 636(b)(1)(A).
7
We further note that the transfer of the case to the Western
District of Pennsylvania was dictated by 28 U.S.C. ' 1402(c),
which expresses in unqualified terms the intention of Congress
to adjudicate wrongful levy suits in the jurisdiction of the situs
of the res.
8
In Becton, we found that, because the plaintiff was suing the
United States, “sovereign immunity is implicated.” Becton, 215
F.3d at 345. Sovereign immunity dictates that a private litigant
cannot sue the United States unless the suit fits within a waiver
to this immunity that is legislated by Congress. Block v. North
Dakota ex. rel. Bd. of University and School Lands, 461 U.S.
273, 287 (1983); see also White-Squire v. United States Postal
Service, 592 F.3d 453, 456 (3d Cir. 2010). We held that,
9
B.
Scheafnocker=s pro se complaint, however, also
articulates a procedural due process claim that is distinct from
her wrongful levy claim. It is axiomatic that an „“elementary
and fundamental requirement of due process in any proceeding
which is to be accorded finality is notice reasonably calculated,
under all the circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to present
their objections.‟” Nu-Look Design, Inc. v. C.I.R., 356 F.3d 290,
295 (3d Cir. 2004) (quoting Mullane v. Central Hanover Bank &
Trust Co., 339 U.S. 306, 314 (1950)); see also Dee v. Borough
of Dunmore, 549 F.3d 225, 232 (3d Cir. 2008). Scheafnocker
contends, and the government admits, that the Internal Revenue
Service did not give her any notice of the levy or her right to
challenge it. She asserts that the government=s failure to provide
notice denied her of any opportunity to have the merits of her
wrongful levy claim reviewed. Because her cause was denied
by the Tax Advocate and was dismissed by the District Court as
untimely, depriving her a review of the merits of her claim, her
assertion of constitutional harm has substance. We, therefore,
although section 6532 waives sovereign immunity to allow
wrongful levy claims against the government, the time
limitations expressed therein must be strictly construed.
Becton, 215 F.3d at 345. As a result, we held that “the failure to
file a timely wrongful levy claim prior to the expiration of the
time limitation in section 6532(c) deprives the district court of
subject matter jurisdiction.” Id. at 353. Becton, therefore,
eliminates the District Court=s jurisdiction over Scheafnocker=s
suit to the extent that she asserts a wrongful levy claim.
10
must ascertain whether the District Court has jurisdiction to
review her due process claim.9
The government argues that the District Court lacks
jurisdiction because Scheafnocker=s suit, however characterized,
is barred by sovereign immunity. We apply the rule that the
federal government is generally immune from suit, except where
Congress has expressly articulated an exception to the immunity.
Becton, 215 F.3d at 345; Matsko v. United States, 372 F.3d 556,
558 (3d Cir. 2004). However, Scheafnocker seeks two different
remedies for the alleged constitutional due process violation:
she requests money damages, or in the alternate, an opportunity
to present the merits of her wrongful levy claim. As we will
explain below, Scheafnocker=s due process claim for money
damages is barred by sovereign immunity. However, we
conclude that, to the extent that she seeks a purely procedural
remedy, the District Court does have jurisdiction to consider her
claim.
Jurisdiction for constitutional claims seeking money
damages against the United States is grounded in the Tucker
Act. 28 U.S.C. ' 1491(a). The Act authorizes the Court of
Claims to “render judgment upon any claim against the United
States founded . . . upon the Constitution.” Id.; see also United
States v. Testan, 424 U.S. 392, 399 (1976); Chabal v. Reagan,
822 F.2d 349, 353 (3d Cir. 1987). Moreover, the District Court
9
„“[I]t is familiar law that a federal court always has jurisdiction
to determine its own jurisdiction.‟” White-Squire, 592 F.3d at
456 (quoting United States v. Ruiz, 536 U.S. 622, 628 (2002)
(citation omitted)).
11
is authorized to hear Tucker Act claims that do not exceed
$10,000. 28 U.S.C. ' 1346(a)(2); Chabal, 822 F.2d at 353.
However, the Tucker Act is only a jurisdictional statute and does
not independently create any substantive rights enforceable
against the United States for money damages. Testan, 424 U.S.
at 398; DiLuigi v. Kafkalas, 584 F.2d 22, 23 n. 2 (3d Cir. 1978).
This is problematic for Scheafnocker=s claim for money
damages.
“[I]t is well settled that there is no Tucker Act
jurisdiction over a claim founded solely on a fifth amendment
procedural due process claim, because „[t]he Due Process
Clause simply cannot be read to mandate money damages be
paid.‟” Radin v. United States, 699 F.2d 681, 685 n. 8 (4th Cir.
1983) (quoting Alabama Hospital Association v. United States,
656 F.2d 606, 609 (Ct. Cl. 1981)). Therefore, even if we were
to dismiss this cause without prejudice so that it might be filed
in the Court of Claims, or authorize the plaintiff to waive
damages in excess of $10,000 to enable the District Court to
hear the claim, Scheafnocker does not have a basis to claim a
substantive right to money damages. As a result, we conclude
that the District Court does not have jurisdiction to consider
Scheafnocker=s constitutional due process claim, to the extent
she seeks monetary relief.
Scheafnocker, however, also requests a purely procedural
remedy. In her prayer for relief she states the following: “that
this Court provide opportunity for Plaintiff to show all evidence
and proof.” Complaint 3, ECF No. 1. She seeks an opportunity
to present her challenge to the levy so that it can be judged on its
merits, a review that she asserts was foreclosed because the lack
of notice prevented her from filing the claim earlier.
12
As noted earlier, the United States government has
sovereign immunity from suits against it except where Congress
has expressly articulated an exception. Becton, 215 F.3d at 345.
Certainly, district courts have original jurisdiction over “all civil
actions arising under the Constitution, laws, or treaties of the
United States.” 28 U.S.C. ' 1331. Although this broad grant of
authority encompasses causes such as Scheafnocker‟s, the
paramount issue in this case is whether it can be said that
Congress has expressly waived sovereign immunity for the type
of claim raised here. We conclude that it has.
In 1976, Congress amended 28 U.S.C. ' 1331,
eliminating the $10,000 jurisdictional amount in cases where the
suit is filed against “the United States, any agency thereof, or
any officer or employee thereof in his official capacity.” 28
U.S.C. 1331 Historical and Statutory Notes; see also Pub. L. No.
94-574. Simultaneously, Congress amended 5 U.S.C. ' 702 (the
Administrative Procedures Act) to its current form, which states
the following.
A person suffering legal wrong
because of agency action, or
adversely affected or aggrieved by
agency action within the meaning
of a relevant statute, is entitled to
judicial review thereof. An action
in a court of the United States
seeking relief other than money
damages and stating a claim that an
agency or an officer or employee
thereof acted or failed to act in an
13
official capacity or under color of
legal authority shall not be
dismissed nor relief therein be
denied on the ground that it is
against the United States or that the
United States is an indispensable
party.
5 U.S.C. ' 702.
The amendment to section 702 was described as
“remov[ing] three technical barriers to the consideration on the
merits of citizens‟ complaints against the Federal Government,
its agencies or employees.” H.R. Rep. No. 94-1656 (1976).
One “technical barrier” addressed in the amendment was
“remov[ing] the defense of sovereign immunity as a bar to
judicial review of federal administrative action otherwise
subject to judicial review.” 5 U.S.C.A. ' 702, Historical and
Statutory Notes. Moreover, in reference to the 1976 amendment
to section 1331, the Supreme Court said “[t]he obvious effect of
this modification, subject only to preclusion-of-review statutes
created or retained by Congress, is to confer jurisdiction on
federal courts to review agency action, regardless of whether the
APA of its own force may serve as a jurisdictional predicate.”
Califano v. Sanders, 430 U.S. 99, 105 (1977). Finally, we note
that, in 1980, Congress amended section 1331 again, eliminating
the $10,000 jurisdictional amount in all federal question claims.
Federal Question Jurisdictional Amendments Act of 1980, Pub.
L. No. 96-486; see H.R. Rep. No. 96-1461 (1980). We read in
these amendments an unmistakable, express intent by Congress
to create an exception to sovereign immunity precisely in cases
in which a person raises a non-monetary claim, such as a
14
constitutional due process claim, against an agency of the
federal government.
We are aware that the amendments to Section 1331 and
Section 702 “[do] not confer authority to grant relief if any other
statute granting consent to suit expressly or impliedly forbids the
relief which is sought.” H.R. Rep. No. 94-1656. Typically,
suits that challenge the procedures used by the Internal Revenue
Service to collect taxes are blocked by the Anti-Injunction Act.
The Act prohibits any suit that seeks to “[restrain] the
assessment or collection of any tax . . . .” 26 U.S.C. ' 7421(a).10
Yet, in this case, the government levied the bank account in
2003. Joanne Scheafnocker‟s suit does nothing to restrain the
collection of taxes because the funds in the account were long
ago applied to Fred Scheafnocker=s tax debt, making the Anti-
Injunction Act bar inapplicable here. Therefore, we conclude
that the District Court has jurisdiction to consider
Scheafnocker‟s due process claim.
Nonetheless, to survive the government=s motion to
dismiss, Scheafnocker=s complaint must contain sufficient
factual matter, accepted as true, to “„state a claim to relief that is
plausible on its face.‟” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949
10
“Except as provided in sections 6015(e), 6212(a) and (c),
6213(a), 6225(b), 6246(b), 6330(e)(1), 6331(i), 6672(c),
6694(c), 7426(a) and (b)(1), 7429(b), and 7436, no suit for the
purpose of restraining the assessment or collection of any tax
shall be maintained in any court by any person, whether or not
such person is the person against whom such tax was assessed.”
26 U.S.C. ' 7421(a).
15
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570 (2007)). Specifically, Scheafnocker must plead sufficient
facts to assert a taking of her property by the government
without „“notice reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of
the action and afford them an opportunity to present their
objections.‟” Nu Look Design, Inc., 356 F.3d at 295 (quoting
Mullane, 339 U.S. at 314).
Scheafnocker pleads, and the government concedes, that
the government levied funds from a bank account jointly held by
Scheafnocker and her ex-husband. We find that this sufficiently
pleads both a property interest and a Ataking@ that invokes
constitutional due process rights. See Finberg v. Sullivan, 634
F.2d 50, 56 (3d Cir. 1980). Scheafnocker also pleads that she
was completely unaware of the levy, asserting in her complaint
that the government never notified her of the levy, and that she
did not discover it until she attempted to make a deposit to the
account after the statute of limitations for wrongful levy claims
had passed. We conclude that these facts amply plead a claim
that the government violated the constitution by failing to
provide her notice that was reasonably calculated to apprise her
of the levy. For all of these reasons, we hold that her complaint
provides enough facts to ground a plausible due process claim.
The remaining question is whether we should consider
the merits of this matter, or remand the cause to the District
Court to address the due process issue in the first instance. We
note that there was no motion for summary judgment filed and
that there is no indication that the parties have engaged in
discovery. Rather, this appeal was brought before us after the
District Court=s ruling on a motion to dismiss, or in the
16
alternative, for judgment on the pleadings. Further, the factBif it
is indeed a factBthat bank statements are normally sent to
account holders on a monthly basis could be taken to support the
conclusion that the Government=s efforts are Areasonably
calculated@ to afford account holders notice of a levy. See
Kaggen v. Internal Revenue Service, 71 F.3d 1018, 1020 (2d
Cir. 1995); cf. Mullane, 339 U.S. at 315 (“The criterion is not
the possibility of conceivable injury, but the just and reasonable
character of the requirements, having reference to the subject
with which the statute deals.”) (citation omitted).
Thus, we believe the District Court should develop the
factual record as to whether there was in this case “notice
reasonably calculated” to apprise co-owners of levied assets of
the levy. Nu-Look Design, Inc. 356 F.3d at 295 (quoting
Mullane, 339 U.S. at 314). In this regard, the record should be
developed to show, among other things: (1) whether and, if so,
when Scheafnocker ever received notice from the bank (as
opposed to the Government, which concedes that it never sent
her notice); (2) whether the bank sent notice to Scheafnocker;
(3) whether Scheafnocker kept the bank apprised of any changes
of address that she may have made; (4) whether it is the bank‟s
normal practice to send notice to joint owners of an account,
either on a monthly basis or when an account has been levied;
(5) what the common practices of other banks are in terms of
sending notice; and (6) what the IRS=s understanding is of
banks= practices in terms of sending notice to joint owners of
accounts. For these reasons, we will vacate the order of the
District Court and remand the cause for further proceedings that
are consistent with this opinion.
17
NYGAARD, Circuit Judge, Concurring.
Although I concur in the holding that the District Court
erred by dismissing the due process claim, I disagree that a
remand to the District Court to consider the due process claim is
warranted.1 Indeed, while noting that “[t]he constitutionality of
the levy procedure [section 7426] . . . „has long been settled‟”
the Supreme Court specifically invited a review of the very legal
question Scheafnocker now raises. United States v. National
Bank of Commerce, 472 U.S. 713, 721 (1985) (quoting Phillips
v. Commissioner, 283 U.S. 589, 595 (1931)).
The Supreme Court described the levy process as “an
effective and inexpensive administrative remedy for the return
of property.” National Bank of Commerce, 472 U.S. at 728.
Yet, in a crucial footnote, the Court also said the following.
We do not pass upon the
constitutional questions that were
addressed by the District Court, but
not by the Court of Appeals,
concerning the adequacy of the
notice provided by ' 6343(b) and '
7426 to persons with competing
claims to the levied property.
There is nothing in the sparse
record in this case to indicate
whether Ruby and Neeva Reves
were on notice as to the levy, or as
to what the Government‟s practice
1
I would remand for different reasons. See infra.
1
is concerning the notification of
codepositors in this context. As the
parties are free to address this issue
on remand, the dissent‟s concerns
on this score . . . are decidedly
premature.
Id. at 728 n. 12. In contrast to National Bank of Commerce, the
record in this case does provide us with answers to factual
questions unknown to the Supreme Court in that case.
Indeed, the controlling facts of this claim are not in
dispute. First, the government admits that it levied the bank
account that is at the center of this case. Second, as the
government concedes, Scheafnocker sufficiently pleads an
ownership interest in these levied funds: a property interest that
invokes constitutional due process rights. Third, Scheafnocker
states that she never received any notice from the government.
Finally, the government admits that it never notified
Scheafnocker of the levy. From this, it is clear that
Scheafnocker has presented sufficient allegations to ground a
claim that the levy was unconstitutional for purposes of
procedural due process analysis. See Finberg v. Sullivan, 634
F.2d 50, 56 (3d Cir. 1980). Indeed, I would hold that it is
irrelevant whether the bank statements were sent to
Scheafnocker. All they would indicate, after the fact and
possibly too late to take action, is that someone had snatched the
funds. It would not provide any information about the nature of
the taking or the process that is available to challenge the levy.
In contrast, a Notice of Levy is prospective in nature, alerting
the co-owner that the government has taken control of assets and
will convert them, absent objections. It would also inform the
2
co-owner of the established procedure that is available to object
to the levy.
In my view, all that remains here is a legal determination:
whether the government=s failure to notify Joanne Scheafnocker
of the levy violated her constitutional right to due process. I
conclude that it does, and in the interest of judicial economy we
should proceed to the merits of her claim.
With regard to the merits of this case, there is a clear
facial contradiction between the government=s total failure to
apprise Scheafnocker of the levy and the fundamental
constitutional right to „“notice reasonably calculated, under all
the circumstances, to apprise interested parties of the pendency
of the action and afford them an opportunity to present their
objections.”‟ Nu Look Design, Inc. v. C.I.R., 356 F.3d 290, 295
(3d Cir. 2004) (quoting Mullane v. Central Hanover Bank &
Trust Co., 339 U.S. 306, 314 (1950)). In the face of such a
glaring incongruity, the government does not provide any
legitimate reason for its practice. Its assertion that it is not
authorized to notify non-taxpayer co-owners of the levy is
incorrect. The wrongful levy process is set out in 26 U.S.C. '
7426 and 26 U.S.C. ' 6343, separate from the levy process
provisions, which delegate authority to the Secretary to make
determinations about wrongful levy claims. 2 As a result, the
2
“If any person liable to pay any tax neglects or refuses to pay
the same within 10 days after notice and demand, it shall be
lawful for the Secretary to collect such tax (and such further sum
as shall be sufficient to cover the expenses of the levy) by levy .
. . (d) Requirement of notice before levy.--(1) In general.--Levy
may be made under subsection (a) upon the salary or wages or
3
most that can be said is that the statute is silent with respect to
the provision of notice to non-taxpayer co-owners about the levy
and their right to challenge it.
The government also errantly argues that Congress
expressed its intent to place the burden of discovering the levy
upon the co-owner.3 The government reasons that the nine-
month statute of limitations applicable to the wrongful levy
process, 26 U.S.C. ' 6532(c), can be read to infer a
Congressional intent to impose a burden of diligent oversight on
other property of any person with respect to any unpaid tax only
after the Secretary has notified such person in writing of his
intention to make such levy.” 26 U.S.C. § 6331. The lack of
mention of notice to non-taxpayer co-owners is not, of itself,
evidence of a Congressional intent to withhold authority to
notify such parties.
3.
“(c) Suits by persons other than taxpayers.--(1) General rule.--
Except as provided by paragraph (2), no suit or proceeding
under section 7426 shall be begun after the expiration of 9
months from the date of the levy or agreement giving rise to
such action. (2) Period when claim is filed.--If a request is made
for the return of property described in section 6343(b), the 9-
month period prescribed in paragraph (1) shall be extended for a
period of 12 months from the date of filing of such request or
for a period of 6 months from the date of mailing by registered
or certified mail by the Secretary to the person making such
request of a notice of disallowance of the part of the request to
which the action relates, whichever is shorter.” 26 U.SC. §
6532.
4
the co-owner, rather than a duty of notice on the government,
because nine months is long enough for a co-owner to discover
the levy. See Dieckman v. United States, 550 F.2d 622, 624
(10th Cir. 1977). I do not find support for this inference and,
moreover, I do not agree with it. Constitutional due process
strictures may sometimes be onerous. That, however, does not
empower the government to ignore them. “[I]t does not follow
that the State may forego even the relatively modest
administrative burden of providing notice by mail to parties who
are [able to monitor their assets].” Mennonite Board of Missions
v. Adams, 462 U.S. 791, 799-800 (1983).
The Supreme Court said the following in reference to
notice by publication, a method of notice that at least requires a
modicum of effort on the part of the government to provide
information to stake holders.
“Where the names and post office
addresses of those affected by a
proceeding are at hand, the reasons
disappear for resort to means less
likely than the mails to apprise
them of its pendency.”
Schroeder v. City of New York, 371 U.S. 208, 212-213 (1962)
(quoting Mullane, 339 U.S. at 318). Such reasoning is all the
more compelling in a circumstance such as this where the
government is claiming that it does not have any affirmative
duty to notify a co-owner of an asset it intends to take.
Indeed, the very fact that Congress explicitly crafted
section 7426 as an exception to sovereign immunity
5
demonstrates, in my view, a Congressional resolve that—even in
light of the pressing need for a quick, efficient process to collect
back taxes—the levy process would not run rough-shod over
legitimate property interests of non-taxpayer co-owners.4 For
these reasons, I would hold that the government‟s position,
reading the statute as eschewing any need or obligation to
affirmatively provide notice of the levy to non-taxpayer co-
owners, is constitutionally untenable. 5 Mindful that due process
is a constitutional guarantee, not a “legislative grace” (Arnett v.
Kennedy, 416 U.S. 134, 167 (1974)), I read the statute as vesting
the Secretary with the responsibility of deciding claims of
wrongful levy in a manner that is consistent with all
constitutional mandates, including notice. The statute, as
written, does not run afoul of the constitution.
However, on the question of whether the government has
implemented the statute in a manner that is consistent with
constitutional guarantees, I conclude that it has not. The
government relies upon comments to the regulation as authority
for its current practice. Yet, from my review, the only definitive
4
See also Terrell v. C.I.R., 625 F.3d 254, 257 (5th Cir. 2010)
(Internal Revenue Service must use “reasonable diligence” to
provide notice to “innocent spouse” of opportunity to appeal
denial of relief from an assessment.).
5
Where differing interpretations of a statute are possible, we
must read it to preserve its constitutionality. Forum for
Academic and Institutional Rights v. Rumsfeld, 390 F.3d 219,
229 n.8 (3d Cir. 2004); see also Rust v. Sullivan, 500 U.S. 173,
190 (1991).
6
exclusion of notice to non-taxpayers is found in the regulations
implementing section 6331, the tax levy process, where it states
the following: “Q-A1. Who is the person to be notified under
section 6330? A-A1 . . . A pre-levy or post-levy CDP
[collection due process] Notice . . . will be given only to the
taxpayer.” 26 C.F.R. § 301.6330-1(a)(3). The regulations do
not separately address the wrongful levy process, leading me to
question whether, even here, any authoritative basis exists for
the government to refrain from providing notice to non-taxpayer
co-owners. 6 Nonetheless, taking the government=s argument at
face value, I conclude for the reasons that follow that its
implementation of the statute does not conform to the mandates
of due process.
6
Although the official comment to the regulation narrows notice
of the levy only to taxpayers, we note that the regulations are, at
best, ambiguous on co-owners of levied assets. Beyond the
taxpayer, the only persons explicitly discussed in the regulations
are “known nominees of, persons holding property of, or
persons holding property subject to a lien with respect to, the
taxpayer.” See 26 C.F.R. § 301.6330-1(a)(3)(Q-A2, A-A2; Q-
B5, A-B5). The regulations make clear that these persons will
not receive either notice or any due process hearing. Id. While
the affirmative statement in A-A1 of the regulation delineates
who will receive notice, the complete failure of the regulations
to affirmatively and specifically reference co-owners of levied
assets, or to cross-reference section 7426, is a lacuna that casts
doubt on whether the rights of co-owners were considered when
the procedures were constructed.
7
“[R]esolution of the issue whether the administrative
procedures provided here are constitutionally sufficient requires
analysis of the governmental and private interests that are
affected.” Mathews v. Eldridge, 424 U.S. 319, 334 (1976).
Specifically, three factors are examined.
First, the private interest that will
be affected by the official action;
second, the risk of an erroneous
deprivation of such interest through
the procedures used, and the
probable value, if any, of additional
or substitute procedural safeguards;
and finally, the government‟s
interest, including the function
involved and the fiscal and
administrative burdens that the
additional or substitute procedural
requirement would entail.
Id. at 335. Here, the first prong is satisfied because there is no
real dispute that ownership of funds in a bank account is a
property interest that is subject to constitutional due process
protection. See, e.g., Finberg, 634 F.2d at 56.
Regarding the second prong, the facts of this case provide
a patent demonstration of the danger created by the present
wrongful levy scheme. Scheafnocker became aware of the levy
fourteen months after it occurred, well after the statute of
limitations for a wrongful levy claim had tolled. As a result,
unsurprisingly, all of her subsequent attempts to challenge the
levy were deemed barred. Scheafnocker, therefore, was not only
8
deprived of the funds in her bank account as a result of the
government=s levy, but also denied any process by which the
merits of her challenge to the levy could be heard. Because the
government admits that it does not, and will not notify non-
taxpayer co-owners of levied assets, the risk of erroneous
deprivation is apparent and ongoing.
With respect to the third prong, the usual arguments
employed against burdening the government‟s tax collection
efforts with additional procedural requirements are not
applicable here. Notice would not hamper the government‟s tax
collection efforts in any way because, as noted in National Bank
of Commerce, the levy process established in section 7426 is
provisional. The levy itself does not vest the government with
an ownership interest. Rather, it is an extraordinary measure—
as an alternative to the normative judicial process—in which the
government wrests control of the asset from the taxpayer to
prevent any subterfuge that would place the property out of the
reach of the government. The disposition of ownership of the
asset is not conclusively determined until after the period for a
wrongful levy challenge has expired. National Bank of
Commerce, 472 U.S. at 721. Therefore, providing notice to co-
owners that their property has been provisionally seized under
emergent circumstances would not delay the levy, nor would it
forestall the date upon which the time bar for a wrongful levy
closes, because the statute of limitation to challenge the levy
runs from the date of the levy. 26 U.S.C. ' 6532(c).
For all of these reasons, and with all three prongs of the
Mathews analysis satisfied, I conclude that both governmental
and public interests support a holding that the administrative
procedures at issue here are constitutionally infirm. The failure
9
of the Internal Revenue Service to provide any notice of the levy
to Joanne Scheafnocker, a non-taxpayer co-owner of property
levied pursuant to section 6331, violated her constitutional right
to due process.
Lastly, the government argues in the alternative that, even
if the lack of notice is a constitutional violation, Scheafnocker‟s
delay in filing her complaint before the District Court eliminates
any argument that her claim was timely. This is, essentially, a
harmless error argument.
The government notes that, in the Taxpayer Advocate‟s
denial of Scheafnocker‟s original request for assistance, there
was notice of her right to appeal to the District Court, along with
a recitation of the statutes dictating the time-frame in which this
appeal must be filed. Scheafnocker, instead, filed her appeal
with the Tax Court. It was only after the Tax Court dismissed
her appeal that she filed a complaint with the District Court.
This filing occurred outside of the statutory time limit, even if
the date on which the statute began to run is calculated from the
day on which she filed the Taxpayer Assistance Order, IRS
Form 911, with the Taxpayer Advocate. 26 U.S.C. § 6532(c).
The government argues, as a result, that Scheafnocker cannot
claim that she suffered any harm from the original lack of
notice.
The fundamental problem with this argument, however,
is that the government‟s original failure to give Scheafnocker
timely and appropriate notice of the levy prevented her from
receiving any review or hearing on the merits of her wrongful
levy claim. Therefore, the after-the-fact notice of her appeal
options that she received in the Tax Advocate‟s denial of her
10
claim is of no consequence to our analysis. Her claim was
already fatally undermined by the statute of limitation, a point
that was made clear by the decision of the District Court. Given
the centrality of the lack of notice to the subsequent failure of
her wrongful levy claim, an error that precluded any review of
Scheafnocker‟s claim on the merits, this constitutional violation
cannot now be deemed harmless. See Loui v. Merit Systems
Protection Board, 25 F.3d 1011, 1014 (Fed. Cir. 1994).
For all of these reasons, I would vacate the decision of
the District Court and remand this cause for a hearing on the
merits of Joanne Scheafnocker=s wrongful levy claim.
11