In Re: Long-distance Telephone Service

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 21, 2014 Decided May 9, 2014

No. 12-5380

IN RE: LONG-DISTANCE TELEPHONE SERVICE FEDERAL EXCISE
TAX REFUND LITIGATION-MDL 1798,

OSCAR GURROLA, ET AL.,
APPELLANTS

ANTHONY BELLONI,
APPELLEE

ROSALVA GURROLA AND BERNADETTE CAROL DUFFY,
APPELLANTS

v.

UNITED STATES OF AMERICA, ACTING BY AND THROUGH THE
INTERNAL REVENUE SERVICE, ET AL.,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 1:07-mc-00014)

Michael A. Bowen argued the cause for appellants Neiland
Cohen, et al. Benjamin F. Johns argued the cause for appellants
Oscar Gurrola, et al. With them on the briefs were Jonathan W.
Cuneo, Robert J. Cynkar, William H. Anderson, Nicholas E.
 2

Chimicles, Marc B. Dorfman, Mark C. Rifkin, Henry D. Levine,
Charles Tiefer, and Randy J. Hart.

Ellen P. DelSole, Attorney, U.S. Department of Justice,
argued the cause for appellee United States of America. With
her on the brief were Tamara W. Ashford, Principal Deputy
Assistant Attorney General, Ronald C. Machen Jr., U.S.
Attorney, and Gilbert S. Rothenberg and Teresa E. McLaughlin,
Attorneys.

Before: TATEL and BROWN, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.

Opinion for the court filed by Senior Circuit Judge
RANDOLPH.

Opinion concurring in part and dissenting in part filed by
Circuit Judge BROWN.

I.

RANDOLPH, Senior Circuit Judge: This appeal has its
genesis in 26 U.S.C. § 4251, which imposes an excise tax “on
amounts paid for . . . toll telephone service.” Telephone service
is taxed only if its price “varies in amount with the distance and
elapsed transmission time of each individual communication.”
Id. § 4252(b). Technological advances of the last few decades
changed cost structures and, as a result, telephone companies
began charging only by elapsed transmission time. The Internal
Revenue Service, however, continued to collect the tax.

Beginning in 2005, the Service lost a series of cases
challenging the tax. Five courts of appeals, including this court,
held that § 4251 did not permit the Service to tax telephone
 3

service with distance-invariant pricing.1 Around that time, the
three plaintiffs in this consolidated appeal (Cohen, Sloan, and
Gurrola) filed separate putative class-action suits challenging the
tax. Initially, plaintiffs raised a variety of constitutional and
statutory claims, seeking refunds and other relief. In re
Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long
Distance Tel. I), 539 F. Supp. 2d 281, 288-89 (D.D.C. 2008).
The Judicial Panel on Multidistrict Litigation consolidated the
suits in the District Court for the District of Columbia. In re
Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig., 469 F.
Supp. 2d 1348 (J.P.M.L. 2006).

After two of the three plaintiffs—Cohen and Sloan—filed
their complaints, the Service issued without notice and comment
Notice 2006-50, 2006-1 C.B. 1141 (May 26, 2006). Citing the
losses in the courts of appeals, the Notice declared that the
Service would no longer tax telephone service priced without
regard to distance, id. §§ 1(a), 4(c), and established a procedure
to refund illegally collected excise taxes, id. § 5. Taxpayers
could “request a credit or refund . . . on their 2006 Federal
income tax returns.” Id. § 5(a)(2). The Notice allowed taxpayers
to claim as a refund either the amount of taxes actually overpaid
or a safe harbor amount for which no documentation was
required. Id. § 5(c).

Cohen and Sloan amended their complaints to add claims
relating to Notice 2006-50 under the Administrative Procedure
Act (APA), 5 U.S.C. §§ 701 et seq. See Long Distance Tel. I,

1
Fortis, Inc. v. United States, 447 F.3d 190 (2d Cir. 2006) (per
curiam); Reese Bros., Inc. v. United States, 447 F.3d 229 (3d Cir.
2006); Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 (11th
Cir. 2005); Nat’l R.R. Passenger Corp. v. United States, 431 F.3d 374
(D.C. Cir. 2005); OfficeMax, Inc. v. United States, 428 F.3d 583 (6th
Cir. 2005).
 4

539 F. Supp. 2d at 288-89. Sloan squarely raised both
substantive and procedural challenges, while Cohen made only
a substantive APA argument. Id. The district court dismissed all
three complaints. Id. at 287. Regarding the APA claims, the
district court held that Notice 2006-50 was not judicially
reviewable because it was “a statement of internal IRS policy
without the force and effect of law.” Id. at 307; see id. at 306-11.

Plaintiffs appealed the dismissal of their APA claims, and
a panel of this court reversed,2 concluding that Notice 2006-50
“operates as a substantive rule that binds the IRS, excise tax
collectors, and taxpayers.” Cohen v. United States (Cohen I),
578 F.3d 1, 6 (D.C. Cir. 2009). The court also rejected the
Service’s arguments that the Declaratory Judgment Act, 28
U.S.C. § 2201, and the Tax Anti-Injunction Act, 26 U.S.C.
§ 7421, deprived it of jurisdiction. 578 F.3d at 12-14. Judge
Kavanaugh dissented from the panel opinion. He argued that
plaintiffs’ APA claims were barred by the Declaratory Judgment
Act, which prohibits suits seeking declaratory relief “with
respect to Federal taxes.” See id. at 17-20.

The full court granted the Service’s petition for rehearing en
banc to consider whether the Tax Anti-Injunction Act or the
Declaratory Judgment Act barred the court from hearing
plaintiffs’ suits. Cohen v. United States, 599 F.3d 652 (D.C. Cir.
2010) (en banc) (per curiam). The court determined that
plaintiffs’ APA claims could proceed. Cohen v. United States
(Cohen II), 650 F.3d 717, 736 (D.C. Cir. 2011). Adopting much
of the Cohen I panel’s reasoning, the en banc majority ordered
“the district court [to] consider the merits of [plaintiffs’] APA
claim on remand.” Id. Judge Kavanaugh, joined by Chief Judge

2
Cohen (but not Gurrola or Sloan) also appealed the dismissal of
his refund claims. We affirmed that part of the district court’s
judgment. Cohen v. United States, 578 F.3d 1, 14-15 (D.C. Cir. 2009).
 5

Sentelle and Judge Henderson, dissented, arguing that an APA
suit was unavailable because tax refund suits afforded plaintiffs
an adequate legal remedy. Id. at 738-42.

On remand, the district court held that Notice 2006-50 was
promulgated without notice and comment in violation of the
APA. In re Long-Distance Tel. Serv. Fed. Excise Tax Refund
Litig. (Long Distance Tel. II), 853 F. Supp. 2d 138, 142-43
(D.D.C. 2012). Having found a violation of the APA, the district
court prospectively vacated the Notice and remanded to the
Service. Id. at 146. The court declined to set a timetable for any
further action by the Service because no “law unequivocally
requires such action.” Id.

Plaintiffs then moved for entry of final judgment and an
interim award of attorney’s fees under the Equal Access to
Justice Act, 28 U.S.C. § 2412(b) & (d). The district court
entered final judgment in favor of plaintiff Sloan only on her
procedural APA claim. It entered judgment in favor of the
government against both Cohen, who raised only substantive
APA challenges that the court did not need to address, and
Gurrola, who failed to raise any APA arguments. In re Long-
Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long
Distance Tel. III), 901 F. Supp. 2d 1, 5-7 (D.D.C. 2012). The
district court denied plaintiffs’ motion for attorney’s fees. It first
found that plaintiffs could not recover fees under a “common
benefit” theory because the litigation’s costs could not be shifted
to its large, difficult-to-ascertain class of beneficiaries with any
exactitude. Id. at 8-10. The court rejected plaintiffs’ alternative
argument for fees under 28 U.S.C. § 2412(d) because it found
the government’s position was “substantially justified.” Id. at
11-12. Plaintiffs have appealed from the court’s refusal to direct
the Service on remand to issue a refund rule and from its denial
of their interim request for fees.
 6

II.

The government argues that we have no jurisdiction to hear
plaintiffs’ appeal because district court orders remanding to
agencies are not final appealable decisions. See 28 U.S.C.
§ 1291; Sierra Club v. USDA, 716 F.3d 653, 656-57 (D.C. Cir.
2013).3 Typically, that is true. A remand order usually allows the
agency to correct mistakes in earlier proceedings. Delaying
review prevents duplicative appeals from both a district court’s
remand order and an agency’s later action. See In re St. Charles
Pres. Investors, Ltd., 916 F.2d 727, 729 (D.C. Cir. 1990) (per
curiam).

But the rule is not absolute. The government may appeal
these sorts of remand orders because, unlike most private
parties, the government may wind up with “no opportunity to
appeal” later, after it has conducted proceedings in compliance
with the remand order. Occidental Petroleum Corp. v. SEC, 873
F.2d 325, 330 (D.C. Cir. 1989); see Sierra Club, 716 F.3d at
657. Plaintiffs here face a similar predicament. The Service has
not taken any reviewable action in the two years since the
district court’s remand order. Indeed the Service has no reason
to act. The three-year statute of limitations for filing refund
claims, 26 U.S.C. § 6511(a), has likely expired for most
potential claimants and there is no need to streamline the refund
process for hundreds of millions of taxpayers as there was when
Notice 2006-50 issued eight years ago. We find it particularly
important that at oral argument government counsel conceded
that the Service is “not planning” to engage in future rulemaking
on the subject. Oral Arg. Tr. at 23:16. In these unusual
circumstances, treating the district court’s remand order as

3
Plaintiffs do not argue that the denial of attorney’s fees is, in
itself, a final appealable decision. See Pigford v. Veneman, 369 F.3d
545 (D.C. Cir. 2004).
 7

unappealable would “effectively preclude[]” plaintiffs from ever
challenging the district court’s decisions. Sierra Club, 716 F.3d
at 658; see Ringsby Truck Lines, Inc. v. United States, 490 F.2d
620 (10th Cir. 1974).

We may, in any case, bypass complex questions dealing
with appellate jurisdiction when addressing the merits would not
require us to “reach[] a question of law that otherwise would
have gone unaddressed.” See Sherrod v. Breitbart, 720 F.3d 932,
936-37 (D.C. Cir. 2013) (quoting Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 98 (1988)). The law governing
plaintiffs’ challenges is well-established and renders the merits
“plainly insubstantial.” Id. (quoting Norton v. Matthews, 427
U.S. 524, 530 (1976)). In such a case we may proceed to decide
the merits.

The Supreme Court has endorsed this “practical” approach
to finality, particularly in the “twilight zone” where “it is
impossible to devise a formula to resolve all marginal cases.”
Gillespie v. U.S. Steel Corp., 379 U.S. 148, 152 (1964); see also
15A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD
H. COOPER, FED. PRACTICE & PROCEDURE: JURISDICTION § 3913
(2d ed. 1992). We therefore turn to the merits of plaintiffs’
claims, recognizing that in the mine run of decisions remanding
to an agency, § 1291 will foreclose a private-party appeal.

III.

Plaintiffs allege that the district court erred in vacating
Notice 2006-50 and remanding, without specifically instructing
the Service to promulgate a new refund procedure. When, as
here, a rule is promulgated without notice and comment, the
APA directs the court to “hold unlawful and set aside [the]
agency action.” 5 U.S.C. § 706(2). The APA also permits a court
to “compel agency action unlawfully withheld.” Id. § 706(1).
 8

But that provision applies only to “discrete action” that is
“legally required . . . about which an official had no discretion
whatever.” Norton v. S. Utah Wilderness Alliance, 542 U.S. 55,
63-64 (2004) (internal brackets and quotation marks omitted).
Consequently, courts issue “detailed remedial orders” to an
agency “[o]nly in extraordinary circumstances.” N.C. Fisheries
Ass’n v. Gutierrez, 550 F.3d 16, 20 (D.C. Cir. 2008).

Plaintiffs have not satisfied § 706(1)’s exacting
requirements. 26 U.S.C. § 7422(a), which plaintiffs cite, at most
requires some form of tax refund procedure. Yet one already
exists. See 26 C.F.R. §§ 301.6401-1 et seq. Section 7422 does
not come close to requiring what plaintiffs seek—a specific
refund procedure for the telephone excise tax. Even if the code
did require some excise-tax-specific procedure, it affords the
Secretary of the Treasury great discretion to design the details:
what procedural requirements to impose, how much time must
elapse before a claimant may sue, and which forms may be used.
Cf. Comm’r v. Portland Cement Co., 450 U.S. 156, 169 (1981)
(noting the Court’s “customary deference” to treasury regulations
administering the tax code). Under Norton, that discretion
forecloses the detailed order plaintiffs seek. 542 U.S. at 63-64.

Plaintiffs argue that here, unlike in Norton, the Service has
already acted and therefore must correct its error. But that
distinction—between acting and failing to act—is irrelevant
under the APA. Courts review both types of “agency action” the
same way. Id. at 62 (quoting 5 U.S.C. §§ 702, 704, 706). A
court’s authority to remedy either type of error depends entirely
on the underlying statutory obligation of the agency. Id. at 62-
63. Here, the only statutory failure was of notice and comment.
Absent a statutory duty to promulgate a new rule, a court cannot
order it.
 9

IV.

A.

This brings us to the request for attorney’s fees. The
government contends that plaintiffs may recover attorney’s fees
only under 26 U.S.C. § 7430, which applies to “proceeding[s] . . .
[brought] in connection with the determination, collection, or
refund of any tax.” Plaintiffs argue that the general fees
provisions of the Equal Access to Justice Act, 28 U.S.C.
§ 2412(b) & (d), apply.

Both statutes allow only a “prevailing party” to recover
fees. A prevailing party is one who obtains a “material alteration
of the legal relationship of the parties” through a “judgment on
the merits” or a “settlement agreement enforced through a
consent decree.” Buckhannon Bd. & Care Home, Inc. v. W. Va.
Dep’t of Health & Human Res., 532 U.S. 598, 604 (2001)
(internal quotation marks omitted). Gurrola and Cohen, having
failed to obtain either judgments in their favor or settlements,
are not prevailing parties. Long Distance Tel. III, 901 F. Supp.
2d at 11.

Plaintiffs protest that this reasoning is overly formalistic
because both Gurrola and Cohen raised potentially meritorious
substantive challenges to Notice 2006-50 that the district court
never reached. We disagree. One does not become a prevailing
party “by simply filing a nonfrivolous but nonetheless
potentially meritless lawsuit (it will never be determined) . . .
without obtaining any judicial relief.” Buckhannon Bd. & Care
Home, 532 U.S. at 606. Gurrola and Cohen never obtained
“judicial relief” and so they are not entitled to fees.

Sloan is a prevailing party. But we do not decide whether
her request for fees is governed by 26 U.S.C. § 7430 or 28
 10

U.S.C. § 2412 because she cannot succeed under either
provision. A party may not recover fees under § 7430 without
first exhausting administrative remedies. Sloan does not argue
that she has done so here. That leaves § 2412.

B.

Sloan argues that she may recover attorney’s fees under 28
U.S.C. § 2412(b), which makes the government liable for fees
“to the same extent that any other party would be liable under
the common law.” She invokes the common benefit theory,
which applies when “the burden of litigation . . . benefitted
others who in equity should share the expenses.” 10 CHARLES
ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE,
FEDERAL PRACTICE & PROCEDURE: CIVIL § 2675 (3d ed. 1998).
But that theory “ill suits litigation in which the purported
benefits accrue to the general public” and is available only when
“the class[] of beneficiaries [is] small in number and easily
identifiable,” “[t]he benefits c[an] be traced with some accuracy,
and there [i]s reason for confidence that the costs c[an] indeed
be shifted with some exactitude to those benefiting.” Alyeska
Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 264 n.39
(1975); see also Grace v. Burger, 763 F.2d 457, 459-60 (D.C.
Cir. 1985) (holding that “the common benefit theory is
inapplicable in cases . . . where plaintiffs seek injunctive relief
against the government” (quoting Trujillo v. Heckler, 587 F.
Supp. 928, 930 (D. Colo. 1984))).

None of the Alyeska Pipeline criteria are satisfied here. The
class of beneficiaries of this litigation is potentially massive,
including millions of taxpayers who used telephones. But that
class is nearly impossible to ascertain with any precision
because it excludes taxpayers who already claimed a refund and
those who were never entitled to a refund. Even if the class
could be identified, the benefits of the litigation cannot be
 11

estimated, much less determined with exactitude. That is
because Sloan did not secure refunds but, at most, made it
slightly easier to obtain one. Sloan makes no attempt to estimate
the value of the procedural benefit her litigation actually
conferred.4

C.

Sloan also argues that she is entitled to attorney’s fees under
28 U.S.C. § 2412(d), which awards fees to parties prevailing
against the government “unless the court finds that the position
of the United States was substantially justified.” Whether the
government’s position “was substantially justified shall be
determined on the basis of the record (including . . . action or
failure to act by the agency upon which the civil action is based)
which is made in the civil action for which fees and other
expenses are sought.” Id. § 2412(d)(1)(B). The government’s
position is substantially justified if it is “justified in substance or
in the main—that is, justified to a degree that could satisfy a
reasonable person.” LePage’s 2000, Inc. v. Postal Regulatory
Comm’n, 674 F.3d 862, 866 (D.C. Cir. 2012) (quoting Pierce v.
Underwood, 487 U.S. 552, 565 (1988)). Substantial justification
is a “multifarious . . . question, little susceptible of useful
generalization.” Underwood, 487 U.S. at 562. Because the
inquiry is fact-intensive and “the district court may have insights
not conveyed by the record” we review decisions awarding or
denying fees under 28 U.S.C. § 2412(d) for abuse of discretion.
Id. at 557-63.

4
In her reply brief Sloan seems to suggest Alyeska Pipeline’s
criteria do not apply because the government is not entitled to the
money it collected under the excise tax. Sloan has not cited, and we
have not found, any authority supporting that argument.
 12

Although the question is close we do not think the district
court abused its discretion in denying fees. The district court
found the government’s position to be substantially justified
because several circuit judges agreed with the government and
dissented from the Cohen I and Cohen II opinions. Long
Distance Tel. III, 901 F. Supp. 2d at 12.

Sloan cites opinions suggesting that an earlier dissent does
not conclusively show the government’s position was
substantially justified. But those cases acknowledge that prior
dissents are still “properly considered when conducting th[e
substantial justification] inquiry.” Friends of Boundary Waters
Wilderness v. Thomas, 53 F.3d 881, 885 (8th Cir. 1995); see id.
at 884-86; EEOC v. Clay Printing Co., 13 F.3d 813, 816 (4th
Cir.1994).

Here, the existence of several dissenting opinions is
particularly persuasive evidence of substantial justification for
two reasons. First, the court granted en banc rehearing, which is
reserved for “question[s] of exceptional importance” or to
preserve “uniformity of the court’s decisions.” FED. R. APP. P.
35(a). If existing law had plainly favored plaintiffs, there would
have been no cause for en banc review, even of a high-stakes
problem. See Coal. for Responsible Regulation, Inc. v. EPA, No.
09-1322, 2012 WL 6621785 (D.C. Cir. Dec. 20, 2012) (Sentelle,
C.J., concurring in the denials of rehearing en banc).

Second, the legal issues in the earlier appeals were difficult
and amenable to reasonable disagreement. Whether Notice
2006-50 was a reviewable final rule or a policy statement,
Cohen I, 578 F.3d at 6-12, is an amorphous and challenging
legal question. See Cmty. Nutrition Inst. v. Young, 818 F.2d 943,
946 (D.C. Cir. 1987). Similarly, the meaning of the Declaratory
Judgment Act is hardly self-evident, because the Act’s text is
“intrinsically ambiguous.” See Cohen II, 650 F.3d at 727-31.
 13

Against that evidence of substantial justification, Sloan
argues that the Service unjustifiably failed to acquiesce to the
Eleventh Circuit’s American Bankers decision invalidating the
excise tax. See Am. Bankers Ins. Grp. v. United States, 408 F.3d
1328 (11th Cir. 2005). But that conduct is irrelevant because it
did not occur “in the civil action for which fees . . . are sought.”
28 U.S.C. § 2412(d)(1)(B). Furthermore, Sloan conceded at oral
argument that the government complied with the American
Bankers court’s order. See Oral Arg. Tr. at 14:20-17:5. We have
recognized agencies’ rights not to acquiesce in one court’s legal
conclusions in a different case. Indep. Petroleum Ass’n of Am.
v. Babbitt, 92 F.3d 1248, 1261-62 (D.C. Cir. 1996) (Rogers, J.,
dissenting); see id. at 1260 n.3 (majority agreeing).

Sloan also argues that the Service’s position was not
substantially justified because it promulgated Notice 2006-50
without notice and comment. Standing alone, a notice and
comment violation establishes that the government’s conduct
was arbitrary and capricious. But “arbitrary and capricious
conduct is not per se unreasonable” for purposes of attorney’s
fees. Andrew v. Bowen, 837 F.2d 875, 878 (9th Cir. 1988).

It is true that the panel and en banc majority opinions
described the Service’s position in harsh terms. On that basis,
one might reasonably conclude that the Service’s position was
not substantially justified. See, e.g., LePage’s 2000, 674 F.3d at
867-68. But one might also reasonably conclude that, absent
other factors, dissenting opinions on difficult questions are
sufficient evidence of substantial justification. We therefore
cannot say that the district court abused its discretion. The
judgment below is

Affirmed.
 BROWN, Circuit Judge, concurring in part and dissenting
in part. This is a complicated and frustrating case. It has
lasted five years and accomplished nothing. In this litigation,
the Internal Revenue Service (IRS) has lost every round, but,
as the court’s opinion confirms, the odds are always with the
house.

Round one was Cohen I, 578 F.3d 1 (D.C. Cir. 2009),
where we determined the taxpayers could move forward with
a challenge to Notice 2006-50. The Service, rocked but
undaunted, tried again with a larger group of judges in Cohen
II, 650 F.3d 717 (D.C. Cir. 2011) (en banc), arguing it was
immune to suit outside the narrow confines of the refund
process. Again, it failed—by split decision, the taxpayers
won. On remand—round three—the district court found the
IRS had violated the APA and vacated the offending notice,
but it declined to set any timetable for further action.

The Service announced the demise of the refund notice
and resolutely refused to take any other remedial action.
Though there is no dispute about the unauthorized nature of
the exaction, it intends to keep the unrefunded portions of its
ill-gotten gains—a few billion dollars. Indeed, the Service
fares better than the Las Vegas casinos: even when they lose,
they win. Since no law “unequivocally” requires the IRS to
do the right thing, they have the discretion to do wrong. The
taxpayers are out of luck. It was not always thus.

I join—without reservation—the court’s jurisdictional
conclusion. As for the merits, however, I cannot say the
same. The Service’s recalcitrance is disconcerting, and I do
not share my colleagues’ confidence that no law imposes a
duty upon the Service to create a workable refund scheme. In
addition, I view the majority’s EAJA analysis as reasonable,
but incomplete. I therefore respectfully dissent.
 2
I

This appeal is not a refund case. But it is about refunds.
It has long been understood that there is a part-legal, part-
equitable right to reclaim what the government has
wrongfully taken away. Cf. Stone v. White, 301 U.S. 532, 534
(1937) (“The action, brought to recover a tax erroneously
paid, although an action at law, is equitable in its function.”).
Before Congress let down a narrow drawbridge into the
otherwise impenetrable fortress of sovereign immunity so that
taxpayers could seek recovery directly from the United States,
federal courts entertained indebitatus assumpsit suits against
the collectors whom the taxpayers paid. See City of Phila. v.
The Collector, 72 U.S. (5 Wall.) 720, 732–33 (1866) (“[The]
[a]ppropriate remedy to recover . . . money paid under protest
on account of duties or taxes erroneously or illegally assessed,
is an action of assumpsit for money had and received.”). This
curious fiction existed as an end-run around sovereign
immunity, see id. at 733, and was long recognized as such,
see George Moore Ice Cream Co. v. Rose, 289 U.S. 373, 382–
83 (1933) (“A suit against a collector . . . is to-day an
anomalous relic of bygone modes of thought . . . .”).

The fiction, like most, caused a few headaches. See
William T. Plumb, Jr., Refund Suits Against Collectors, 60
HARV. L. REV. 685, 697–98 (1947) (describing the procedural
pitfalls commonly encountered by taxpayers attempting to
obtain refunds from collectors). But it endured because
taxpayers needed some workable mechanism to recover funds
illegally demanded. Refunds were considered to be
obligations of “natural justice and equity,” not gifts of
statutory grace. See Cary v. Curtis, 44 U.S. (3 How.) 236,
246–47 (1845); see also Bull v. United States, 295 U.S. 247,
260 (1935) (“In a proceeding for the collection of estate tax,
the United States through a palpable mistake took more than it
 3
was entitled to. Retention of the money was against morality
and conscience.” (emphasis added)). And that is no less true
today.

The Service has maintained it has no affirmative
obligation to provide refunds. Nearly 170 years ago, Justice
Story pointed out the problem with the Service’s position.
When the Court in Cary v. Curtis, 44 U.S. (3 How.) 236
(1845), interpreted a newly revised statute as precluding suits
against collectors, see id. at 244, Justice Story explained that
depriving taxpayers of all recourse for challenging wrongful
collections is repulsive to the constitutional tradition. To him,
the question was

[w]hether Congress have a right to take from the citizens
all right of action in any court to recover back money
claimed illegally, and extorted by compulsion, by its
officers under color of law, but without any legal
authority, and thus to deny them all remedy for an
admitted wrong, and to clothe the Secretary of the
Treasury with the sole and exclusive authority to
withhold or restore that money according to his own
notions of justice or right?

Id. at 253 (Story, J., dissenting). He never arrived at an
answer, but he felt no need to—the idea was so unimaginable
that Justice Story felt Congress could not have possibly
intended a dramatic measure that would trigger a structural
constitutional crisis. See id. at 257. In the end, he was
right—Congress apparently did not intend the bar against
collector suits, and it patched the law in record time. See
George Stewart Brown, A Dissenting Opinion of Mr. Justice
Story Enacted as Law Within Thirty-Six Days, 26 VA. L. REV.
759, 760 (1940) (“In thirty-six days Congress passed, and
President Tyler signed, [the law] which recalled the majority
 4
ruling in [Cary] and made Judge Story’s opinion the law of
the land.”).

As the Service has made amply clear, there are “off-
label” ways a taxpayer can take back the money he never
owed in the first place. See Appellee’s Br. at 22 (“[The
Service] announced that it would continue to process claims
for refund of the defunct telephone tax, either on Form 843 or
on the 1040 series of income tax returns . . . .”).1 But this
approach requires some faith that the Service will agree to
honor a taxpayer’s claim without having its fingers crossed
behind its back. It could instead choose to be capricious and
deny the refund, citing the taxpayer’s failure to complete a
refund process that, if depicted, looks something like an M.C.
Escher drawing. Cf. Cohen I, 578 F.3d at 11 (“According to
the IRS, taxpayers should have realized all the options the
Service said were closed to them—using forms that proclaim
their inapplicability in bold letter or filing informal claims
that could not be perfected—were nonetheless sufficient to
fulfill their administrative refund obligations and to serve as a
prerequisite to judicial review.”). And the Service could point
to that failure as the basis for denying judicial review. See id.
at 10 (“The ‘usual statutory procedures for claiming a refund
of tax,’ provide no avenue by which individual taxpayers can

1
As we noted in Cohen I, Form 843 facially does not allow for an
excise-tax refund claim. See 578 F.3d at 9–10. It is unclear
whether the 1040 series is still a viable claim mechanism, as the
regulation that permitted the use of that series for excise-tax refund
claims was prospectively vacated. See I.R.S. Notice 2006-50
(“Forms 1040 (series), 1041, 1065, 1120 (series), and 990-T will
include a line for requesting the overpayment amount.”).
 5
fulfill their obligations in order to seek judicial review.”
(citation omitted)).2

What a racket. To quote Justice Story, “[w]here then is
the remedy which is supposed to exist?” Cary, 44 U.S. at 256
(Story, J., dissenting). The Service’s answer? Refunds are
given by its grace alone. See Appellee’s Br. at 37–38
(“Nothing in the Internal Revenue Code or regulations
thereunder requires the IRS to develop a scheme to achieve
the making of refunds of any tax to taxpayers who have made
no claim.”). But, once again, Justice Story provides an apt
rejoinder:

No court, no jury, nay, not even the ordinary rules of
evidence, are to pass between [the Treasury] and the
injured claimant, to try his rights or to secure him
adequate redress. . . . So that in most, if not in all cases
where a controversy arises, the Secretary of the Treasury
has already pronounced his own judgment. Of what use
then, practically speaking, is the appeal to him, since he
has already given his decision?

Cary, 44 U.S. at 256–57.

To remedy an agency’s failure to act, the agency’s action
must be “legally required” or “unlawfully withheld.” Norton
v. S. Utah Wilderness Alliance, 542 U.S. 55, 63 (2004).
Nowhere in the APA does it say that the obligation must
inhere in statute, as the court seems to suggest. See Maj. Op.
at 8 (“A court’s authority to remedy either type of error
depends entirely on the underlying statutory obligation of the

2
For the plaintiffs of this case, of course, the Service will suggest
the statute of limitations is an insurmountable hurdle barring any
further efforts at obtaining redress.
 6
agency.” (emphasis added)). If the structure of the
Constitution—and perhaps other provisions therein—compels
an agency to provide a workable refund scheme, that should
suffice for the APA. After all, the Constitution is law, and a
supreme one at that. See U.S. CONST. art. VI, cl. 2.

The Appellants’ position—and the court’s arguendo
assumption—that § 7422(a) imposes some sort of duty to
provide a workable refund scheme—seems dubious.
Nowadays, to treat a statute as both jurisdictional and
substantive, as the Appellants suggest we do with § 7422(a),
is odd. See Arbaugh v. Y&H Corp., 546 U.S. 500, 516 (2006)
(“But when Congress does not rank a statutory limitation on
coverage as jurisdictional, courts should treat the restriction as
nonjurisdictional in character.”); see also id. (noting “the
threshold number of employees for application of Title VII is
an element of a plaintiff’s claim for relief, not a jurisdictional
issue”). But see United States v. Mize, 756 F.2d 353, 355–56
(5th Cir. 1985) (concluding the definition of “member bank”
and “insured bank” for purposes of a bank fraud statute
“serve[d] a dual purpose, constituting both a jurisdictional
predicate and an essential substantive element of the criminal
offenses”), overruled on other grounds by United States v.
Olano, 507 U.S. 725 (1993). But what about the Tax Code
itself, in addition to the long-understood common law refund
right? Surely, if the Code refers to a right of refund in all but
substance, we can infer that right and a duty arising
therefrom. See, e.g., 26 U.S.C. §§ 6415, 6511. After all, in
City of Philadelphia v. The Collector, 72 U.S. (5 Wall.) 720
(1866), that is precisely what the Court did—infer the right
from the statutory scheme. See id. at 730 (“On the contrary,
the several acts of Congress for the assessment and collection
of internal duties contain many provisions wholly consistent
with any such theory, and which, when considered together,
 7
afford an entirely satisfactory basis for the opposite
conclusion.”).

The majority alternatively posits the Secretary has
fulfilled whatever duty is owed; because he possesses “great
discretion to design the details,” no further action can be
compelled. See Maj. Op. at 8. The duty, however, is to create
a workable refund scheme. What might work well to correct
an individual overpayment is a completely inadequate
response to a systemic irregularity. If one looks at the
Service’s voluminous forms, announcements, notices, and
rules, one would see a labyrinth with no exit. That makes me
quite reluctant to join the court’s conclusion about the
adequacy of the district court’s remand order.

II

Nor do I think the mere presence of a dissenting opinion
gives “substantial justification” to the Government’s position.
The district court concluded there was substantial justification
because of (1) a reasoned district court opinion that we
ultimately disagreed with; and (2) a dissent by three members
of an en banc court. The court’s opinion relies on only the
latter. But neither consideration should be the basis of
denying an EAJA award. See United States v. Paisley, 957
F.2d 1161, 1167 (4th Cir. 1992) (“As a practical matter, the
substantial justification issue cannot be transformed into an
up-or-down judgment on the relative reasoning powers of
Article III judges who may have disagreed on the merits of a
Government litigation position.”).

First, Judge Urbina’s opinion on the plaintiffs’ APA
claims cannot be the basis for determining the Government’s
position was substantially justified. “The most powerful
indicator of the reasonableness of an ultimately rejected
 8
position is a decision on the merits and the rationale which
supports that decision.” Friends of Boundary Waters
Wilderness v. Thomas, 53 F.3d 881, 885 (8th Cir. 1995). If a
district court’s contrary opinion can provide the Government
with substantial justification, then a district court theoretically
can never award EAJA fees in cases involving an appeal that
does not result in affirmance. Surely, attorney’s fees do not
depend upon a plaintiff’s success at every stage of litigation.

As for the en banc dissent, I do not think it to be as potent
as the court makes it out to be. For purposes of the EAJA, I
put little stock into the “exceptional importance” language of
Rule 35. Improbable as it may sound, there exists a
possibility that a case presenting a question of exceptional
importance can nevertheless draw unanimous agreement from
an en banc court. See, e.g., In re Sealed Case No. 97-3112,
181 F.3d 128 (D.C. Cir. 1999) (en banc) (deciding a case with
no dissents or concurrences in the judgment only, despite a
contrary panel opinion); see also id. at 142 (Edwards, C.J. and
Tatel, J., concurring) (“We originally viewed this case as
turning on the difference between two distinct departure
factors . . . but now we are persuaded otherwise.”); id. at 144
(Sentelle, J., concurring) (“I do not disagree with any part of
the court’s thorough opinion affirming the district court.”); id.
at 145 (Henderson, J., concurring) (“I wholeheartedly agree
with the majority’s holding which disposes of this case with
clarity and in full accord with the decisions of courts,
including ours, that have ruled on the issue.”).

Rehearing or no rehearing, a district court should
certainly consider whether there is a dissenting opinion in
appellate consideration of the merits of a case. But dissent
alone cannot provide the Government with substantial
justification. See EEOC v. Clay Printing Co., 13 F.3d 813,
816 (4th Cir. 1994) (“We agree that the dissenting judge’s
 9
views should be considered, but this factor alone (and it is
alone) is not enough to convince us that the district court’s
assessment of the case constituted an abuse of discretion.”).
This is especially true when the Government’s lack of
justification is plainly obvious. See Friends of Boundary
Waters Wilderness, 53 F.3d at 885.

But the majority’s reliance on judicial dissent is but a
quibble. The Service’s unwillingness to own up to its
confusing and dysfunctional “refund scheme” is cause enough
for granting an EAJA award.

The EAJA requires the Government to act reasonably
during all stages of litigation, from the inception of agency
action (or lack thereof) to the conclusion of judicial review.
See Hill v. Gould, 555 F.3d 1003, 1006 (D.C. Cir. 2009)
(noting the Government’s position is “substantially justified”
if “the underlying agency action and the legal arguments in
defense of the action had ‘a reasonable basis both in law and
fact’” (quoting Pierce v. Underwood, 487 U.S. 552, 565
(1988))); see also U.S. SEC v. Zahareas, 374 F.3d 624, 627
(8th Cir. 2004) (“[T]he government must show ‘that it acted
reasonably at all stages of the litigation.” (citation omitted));
Keasler v. United States, 766 F.2d 1227, 1231 (8th Cir. 1985)
(“[T]he ‘position of the United States’ includes the
government’s position at both the prelitigation and litigation
stages.”). Here, the Service may have been justified as to the
jurisdictional issue. But what about the events that led up to
this case, which must be considered under the EAJA?

Throughout this litigation, one of the Service’s main
contentions has been that refunds are readily available under
its current schemes, even notwithstanding Notice 2006-50. In
fact, that’s not true at all. The confusing morass of a process
that we identified in Cohen I still exists, having been present
 10
in this case since its genesis. See Oral Arg. Tr. at 33
(acknowledging the “confusing language” of Form 843 and
conceding the Service’s failure to rectify the confusion).
Compare Oral Arg. Tr. at 26 (“[F]or taxes other than income
taxes, which would include this excise tax[,] you use form
843 . . . .”), with I.R.S. Announcement 2012-16, 2012-18
I.R.B. 876 (Apr. 5, 2012) (“Taxpayers should make their
requests on the appropriate 2006 income tax return. . . .
Taxpayers who wish to request actual amounts of excise taxes
paid rather than the safe harbor amounts described in Notice
2007-11 should use Form 8913 . . . .”), I.R.S. Form 843,
Claim for Refund and Request for Abatement (“Do not use
Form 843 if your claim or request involves . . . an
overpayment of excise taxes reported on Form(s) 11-C, 720,
730, or 2290.”), and Cohen I, 578 F.3d at 9–10 (“Form 843,
however, does not permit this type of refund claim.”). It is
one thing to say the regulatory scheme provides for a
workable refund process; it is another to present a procedural
boondoggle, where refunds are available only with the
governmental equivalent of a wink and nod.

So when the Service says a workable refund scheme
exists under the current legal and regulatory regime, its
contention is, at best, unreasonable, and, at worst, dishonest.
Though it may be only a small part of the Service’s case, that
is reason enough for me to conclude the district court abused
its discretion in declining to award fees to the Sloan plaintiffs.

III

Once upon a time, public law concerned itself with
notions of what was morally right, not just what was
minimally required. But, as counsel for the Service has
repeatedly reminded us throughout this litigation, those days
are part of the dim (and not to be recaptured) past. See
 11
Appellee’s Br. at 37 (“After making the concession that
limited the scope of ‘toll telephone service’ to which I.R.C. §
4252(b)(1) applied, the IRS was by no means required to
notify every taxpayer potentially entitled to a refund, or even
to publicize the availability of refunds.”). These days, no
matter how unwarranted its exactions, whether the Service
returns anything to the taxpayers—when circumstances do not
fit the usual paradigm—is a decision within its sole discretion.
Following the Service’s reasoning to its logical conclusion,
the more larcenously it behaves, the lighter its obligations to
plundered taxpayers become. No doubt this is a sign of the
times, but it seems more an artifact of an administrative state
gone deeply awry.