In the United States Court of Federal Claims
No. 16-496T
(Filed: September 19, 2016)
)
THE NEW YORK AND )
PRESBYTERIAN HOSPITAL, )
) Motion to Dismiss for Lack of
Plaintiff, ) Jurisdiction; RCFC 12(b)(1); Federal
) Insurance Contributions Act (“FICA”);
v. ) Employer Indemnification; 26 U.S.C.
) § 3102(b)
THE UNITED STATES, )
)
Defendant. )
)
Maura B. Grinalds, New York, NY, for plaintiff. Jonathan J. Lerner, Michael H.
Gruenglas, and Robert L. Dunn, New York, NY, and Fred T. Goldberg, Jr., B. John
Williams, and Daniel W.J. Becker, Washington, DC, of counsel.
Matthew D. Lucey, Court of Federal Claims Section, Tax Division, United States
Department of Justice, Washington, DC, with whom were Caroline D. Ciraolo, Acting
Assistant Attorney General, and David I. Pincus, Chief, Court of Federal Claims Section,
for defendant.
OPINION GRANTING MOTION TO DISMISS
FIRESTONE, Senior Judge.
Pending before the court is defendant the United States’ (“the government”)
motion to dismiss this action filed by plaintiff The New York and Presbyterian Hospital
(“the hospital”). The hospital filed this action to recover money the hospital paid to
medical residents to settle litigation in the United States District Court for the Southern
District of New York (“the district court”) (S.D.N.Y. Case Nos. 13 Civ. 5414, 13 Civ.
5899). In the district court consolidated action, the hospital was sued by medical
residents for fraud, breach of contract, unjust enrichment, and related claims in
connection with the hospital’s failure to file protective refund claims for the medical
residents for Federal Insurance Contributions Act (“FICA”) taxes that the hospital and its
predecessor had withheld from the medical residents’ pay from 1995 to 2001. The
hospital asserts in its complaint before this court that it is entitled to payment from the
government for the amount it paid the medical residents under section 3102(b) of the
Internal Revenue Code (“IRC”), 26 U.S.C. § 3102(b).
Section 3102(b) provides that “[e]very employer required so to deduct the [FICA]
tax shall be liable for the payment of such tax, and shall be indemnified against the
claims and demands of any person for the amount of any such payment made by such
employer.” The hospital contends that section 3102(b) requires the government to
reimburse the hospital for the payments it made to the medical residents as the means of
“indemnifying” the hospital for collecting the FICA tax in the first instance. Based on its
reading of the statute, the hospital asserts that section 3102(b) is money-mandating and
thus this court has jurisdiction under the Tucker Act, 28 U.S.C. § 1491(a).
The government argues that this court does not have jurisdiction to hear the
hospital’s case on the grounds that section 3102(b) of the IRC is not a money-mandating
statute and thus the case must be dismissed under Rule 12(b)(1) of the Rules of the Court
of Federal Claims (“RCFC”). According to the government, section 3102(b) is an
immunity provision. The government argues that the term “indemnified” in section
3102(b) is properly read to mean that employers are not liable to employees in the event
an employee makes a claim against the employer in connection with the employer’s
2
withholding of FICA taxes. The government argues that this reading is compelled by
IRC section 7422, which states in relevant part that “[n]o suit or proceeding shall be
maintained in any court for the recovery of any internal revenue tax alleged to have been
erroneously or illegally assessed or collected . . . until a claim for refund or credit has
been duly filed with the [Internal Revenue Service (“IRS”)] . . . .” IRC § 7422(a). The
government argues that by virtue of section 7422, no court has jurisdiction over a claim
by an employee for FICA taxes collected erroneously by an employer until the employee
taxpayer first files a claim with the IRS and thus no employer can ever face liability for
erroneously collecting FICA taxes. The government also relies on a series of cases that
have held that section 3102(b) does not provide a private right of action by employees
against employers with regard to withholding taxes and thus employers are immune from
liability under section 3102(b) from claims by employees. In this connection, the
government further argues that the hospital was not sued for erroneously withholding
FICA taxes but was instead sued in tort for the hospital’s alleged wrongful actions in
connection with failing to inform the medical residents of their possible right to a tax
refund. The government contends that section 3102(b) cannot be construed as mandating
payment by the government for damages paid to settle private tort claims. For all of
these reasons, the government argues, section 3102(b) cannot serve as a basis for this
court to exercise jurisdiction under the Tucker Act. 1 As discussed below, the court
1
Because the court finds for the reasons discussed above that section 3102(b) is not money-
mandating, the court does not reach the government’s argument that the hospital’s case must be
3
agrees with the government and thus the government’s motion to dismiss under Rule
12(b)(1) is GRANTED.
I. STATUTORY AND FACTUAL BACKGROUND
FICA taxes for Social Security and Medicare are based on wages paid to
employees. See IRC §§ 3101, 3111. There is an employee’s share and an employer’s
share. See IRC §§ 3101, 3111. Generally, section 3102(a) requires an employer to
deduct an employee’s share of FICA taxes from the employee’s wages. As noted above,
section 3102(b) provides that “[e]very employer required so to deduct the [FICA] tax
shall be liable for the payment of such tax, and shall be indemnified against the claims
and demands of any person for the amount of any such payment made by such
employer.”
The district court litigation between the hospital and the medical residents has its
roots in the so-called student exception to FICA taxation in section 3121(b)(10) of the
IRC. Specifically, under section 3121(b)(10), FICA taxes do not apply to “service
performed in the employ of . . . a school, college, or university . . . if such service is
performed by a student who is enrolled and regularly attending classes at such school,
college, or university.” IRC § 3121(b)(10) (“the student exception”). The IRS took the
position that medical residents were not eligible for the student exception and required
hospitals employing medical residents to withhold the employee share of FICA taxes
dismissed on the grounds that section 3102(b) is not money-mandating specifically for claims
arising from tort actions filed against employers by employees.
4
from residents’ paychecks and pay the withheld amounts and the employer share to the
government. Compl. ¶ 9; Def.’s Mot. to Dismiss (“MTD”) 3.
For a number of years the scope of the student exception was subject to litigation.
During that period, the IRS allowed employers to file “protective” refund claims to
preserve claims for a refund of the employer and employee shares of FICA taxes.
Compl. ¶¶ 14-16 (citing Treas. Reg. § 31.6402(a)-2(a)). Medical residents were also free
to file their own protective refund claims for the employee share of FICA taxes withheld
from their pay. Compl. ¶ 14 (citing Treas. Reg. § 31.6402(a)-2(a), (b)).
In 2004, the IRS adopted a regulation that generally excluded medical residents, as
full-time employees, from the student exception for services provided after April 1, 2005.
Compl. ¶ 12 (citing Treas. Reg. § 31.3121(b)(10)-2(d)(3); Student FICA Exception, 69
Fed. Reg. 8,604 (Feb. 25, 2004) (proposed rule)); see also Student FICA Exception, 69
Fed. Reg. 76,404 (Dec. 21, 2004) (final rule). 2
On March 2, 2010, however, the IRS decided that while the issue of their student
status was being debated, medical residents could qualify for the student exception for tax
periods ending before April 1, 2005. Thus, hospitals and residents who had filed
protective refund claims for tax periods before April 1, 2005 would be able to obtain
refunds of the FICA taxes withheld from residents’ wages. Compl. ¶ 13 (citing IRS to
Honor Medical Resident FICA Refund Claims, I.R.S. News Release IR-2010-25 (Mar. 2,
2
In Mayo Foundation for Medical Education and Research v. United States, 562 U.S. 44 (2011),
the United States Supreme Court upheld the IRS’s rule as generally excluding medical residents
from the student exception.
5
2010)); Def.’s MTD 5 (citing United States v. Mount Sinai Med. Ctr. of Florida, Inc., 486
F.3d 1248 (11th Cir. 2007); Childers v. New York & Presbyterian Hosp., 36 F. Supp. 3d
292, 299 (S.D.N.Y. 2014)), Ex. 1 (copy of IRS’s 2010 news release). The underlying
dispute in this case stems from the hospital’s decision not to file protective refund claims
for some of the medical residents working at the hospital. Specifically, the hospital did
not file protective refund claims for the medical residents affiliated with Cornell
University. Apparently, the hospital did file protective refund claims for medical
residents at the hospital who were affiliated with Columbia University. Def.’s MTD 5;
Childers, 36 F. Supp. 3d at 300.
The medical residents from Cornell University filed suits against the hospital in
August 2013. Compl. ¶ 20. The cases were consolidated. The residents alleged that
from January 1, 1995 through June 30, 2001, pursuant to a confidential agreement
between the hospital and the IRS that resolved an unrelated and undisclosed tax matter,
the hospital agreed not to file protective refund claims for the medical residents’ share of
FICA taxes withheld from their pay or notify them to file their own protective refund
claims. Childers, 36 F. Supp. 3d at 300. The medical residents charged in their
complaints that the hospital’s decision not to file protective refund claims on their behalf
amounted to fraud, constructive fraud, breach of fiduciary duty, negligent
misrepresentation, negligence, breach of contract, and unjust enrichment. Id. at 298, 301;
see also Def.’s MTD 5-6, Exs. 2-3, 8.
The hospital moved to dismiss the district court litigation on the grounds that the
residents were, in effect, seeking a refund of the FICA taxes the hospital had withheld
6
from the residents’ wages and that under IRC section 7422 the residents had to first file
refund claims with the IRS. See Childers, 36 F. Supp. 3d at 303. Section 7422 states in
relevant part that “[n]o suit or proceeding shall be maintained in any court for the
recovery of any internal revenue tax alleged to have been erroneously or illegally
assessed or collected . . . until a claim for refund or credit has been duly filed with the
[IRS] . . . .”
On June 23, 2014, the district court denied the hospital’s motion to dismiss. See
Childers, 36 F. Supp. 3d at 292. The district court held that section 7422 did not bar the
medical residents’ cases because the medical residents’ claims did “not arise out of the
Hospital’s collection of taxes . . . but from later, independent actions and omissions, such
as agreeing in the Settlement not to file protective refund claims on behalf of Plaintiffs,
keeping the Settlement secret from Plaintiffs, not filing refund claims on behalf of
Plaintiffs and not informing Plaintiffs that they should file refund claims for themselves.”
Id. at 303. The district court then denied the hospital’s request that the district court
certify for immediate appeal whether section 7422 preempted the residents’ actions. Id.
at 319.
On August 19, 2014, the hospital filed in the United States Court of Appeals for
the Second Circuit a petition for a writ of mandamus to redress the district court’s
allegedly erroneous expansion of its jurisdiction. Pet. for Mandamus 2 (Def.’s MTD
Ex. 5). The hospital argued that the district court lacked jurisdiction over the residents’
claims on the grounds that the district court had ignored the plain language of section
7422. Id. at 3-4, 13-14 (citing, among other authorities, United States v. Clintwood
7
Elkhorn, 553 U.S. 1 at 4, 7-9 (2008)). The hospital’s mandamus petition was denied on
October 22, 2014. See Def.’s MTD Ex. 6.
Thereafter, on October 24, 2014, the hospital filed a third-party complaint against
the United States seeking “indemnification” under section 3102(b). Def.’s MTD 6-8,
Ex. 7. The hospital’s claim against the government was never resolved and on June 11,
2015, at the hospital’s request, the district court dismissed without prejudice the
hospital’s third-party complaint against the government. Id.
The hospital did not continue to defend the litigation after its mandamus effort
failed and instead decided to settle the medical residents’ cases. On November 23, 2015,
the district court granted final approval of an agreement between the medical residents
and the hospital under which the hospital agreed to pay a total of $6,632,000 to settle
with the medical residents. Def.’s Reply Ex. 2; see also Def.’s MTD 9, Ex. 8 (order
granting preliminary approval). Under the settlement agreement, each medical resident’s
award was to be determined based on the amount of FICA taxes withheld from the
resident’s wages during the relevant time period 3 as a share of the amount of FICA taxes
withheld from all of the residents in the settlement during the relevant period, 4 multiplied
by the amount available in the settlement fund. Pl.’s Resp. Ex. B at ¶ 49.B (joint
3
The settlement agreement defines the relevant period as January 1, 1995 to June 30, 2001,
corresponding to the dates in the hospital’s agreement with the IRS. Pl.’s Resp. Ex. B at ¶ 5.
4
The settlement agreement defines the “Withheld Amount” as “the sum of all Social Security
Tax and Medicare Tax withheld by Defendant from Class Members’ wages during the Class
Period, minus the amount of FICA refunded to Class Members . . . exclusive of statutory
overpayment interest.” Pl.’s Resp. Ex. B at ¶ 34.
8
stipulation of settlement and release). The settlement agreement states that “[t]he Parties
agree that Class Members’ Settlement Awards can be appropriately characterized as a
refund for the amount of FICA taxes previously withheld by the Hospital from the Class
Members.” Id. at ¶ 50.A.
II. PROCEDURAL HISTORY IN THIS COURT
The pending case was originally filed by the hospital in this court on June 10,
2015 (ECF No. 1 in Case No. 15-593T), before the hospital’s claim against the United
States in the district court litigation was dismissed. The complaint stated that the hospital
sought payment under the above-quoted “indemnified” language in section 3102(b). On
April 18, 2016, this court dismissed the hospital’s complaint without prejudice for lack of
jurisdiction pursuant to 28 U.S.C. § 1500 (ECF No. 28 in Case No. 15-593T), on the
grounds that at the time the hospital filed the action on June 10, 2015, its third-party
complaint against the government was still pending before the district court.
The hospital re-filed its complaint in the above-captioned case on April 20, 2016.
The government filed the pending motion to dismiss the complaint on May 6, 2016. Oral
argument on the government’s motion was heard on August 3, 2016.
III. LEGAL STANDARDS
This case comes before the court on the government’s motion to dismiss for lack
of jurisdiction pursuant to RCFC 12(b)(1). “In deciding a motion to dismiss for lack of
subject matter jurisdiction, the court accepts as true all uncontroverted factual allegations
in the complaint, and construes them in the light most favorable to the plaintiff.” Estes
Express Lines v. United States, 739 F.3d 689, 692 (Fed. Cir. 2014) (citing Cedars-Sinai
9
Med. Ctr. v. Watkins, 11 F.3d 1573, 1583-84 (Fed. Cir. 1993)). However, a party
invoking this court’s jurisdiction ultimately “has the burden of establishing jurisdiction
by a preponderance of the evidence.” Fid. & Guar. Ins. Underwriters, Inc. v. United
States, 805 F.3d 1082, 1087 (Fed. Cir. 2015) (citing Brandt v. United States, 710 F.3d
1369, 1373 (Fed. Cir. 2013); Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746,
748 (Fed. Cir. 1988)). If a motion to dismiss for lack of jurisdiction challenges the
jurisdictional facts alleged in the complaint, the court may consider relevant evidence
outside the complaint in order to determine whether it has jurisdiction. Banks v. United
States, 741 F.3d 1268, 1277 (Fed. Cir. 2014) (citing Reynolds, 846 F.2d at 747).
For the court to exercise jurisdiction under the Tucker Act with respect to a claim
for money under a federal statute, the statute “must be such that [it] ‘can fairly be
interpreted as mandating compensation by the Federal Government for the damage
sustained.’” Roberts v. United States, 745 F.3d 1158, 1162 (Fed. Cir. 2014) (citing
United States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003)). The statute
must “be reasonably amenable to the reading that it mandates a right of recovery in
damages.” Id. (citing White Mountain Apache Tribe, 537 U.S. at 473). The Supreme
Court has further held that there must be an “explicit authorization” for payment when
there are “strong indications that Congress did not intend to mandate money damages.”
White Mountain Apache Tribe, 537 U.S. at 478 (citing Army & Air Force Exch. Serv. v.
Sheehan, 456 U.S. 728, 740 (1982); United States v. Testan, 424 U.S. 392, 399-402
(1976)).
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IV. DISCUSSION
Section 3102(b) states that “[e]very employer required so to deduct the [FICA] tax
shall be liable for the payment of such tax, and shall be indemnified against the claims
and demands of any person for the amount of any such payment made by such
employer.” According to the hospital, the word “indemnified” in section 3102(b)
guarantees that employers will be reimbursed by the United States in the event that an
employee “claims and demands . . . the amount of any such [FICA tax] payment made
by such employer.” The hospital argues that the payments it made to the medical
residents were based on the amounts withheld by the hospital under FICA and thus the
government must “indemnify” it for the settlement payments. The hospital supports its
position by arguing that the plain meaning of the word “indemnify” means to reimburse.
The hospital relies on definitions from various dictionaries that existed at the time section
3102 was enacted in 1935, 5 including the 1910 and 1933 editions of Black’s Law
Dictionary, which defined “indemnify” to mean “to save harmless; to secure against loss
or damage; to give security for the reimbursement of a person in case of an anticipated
loss falling upon him. . . . Also to make good; to compensate; to make reimbursement to
one of a loss already incurred by him.” Indemnify, Black’s Law Dictionary 949 (3d ed.
5
Section 3102(b) was originally enacted in 1935 as section 802(a) of the Social Security Act, ch.
531, 49 Stat. 620, 636 (1935) (“Every employer required so to deduct the tax is hereby made
liable for the payment of such tax, and is hereby indemnified against the claims and demands of
any person for the amount of any such payment made by such employer.”). The provision was
codified with the current language (“shall be indemnified”) as section 1401(b) of the Internal
Revenue Code of 1939, 53 Stat. 1, 175, and recodified as section 3102(b) in the Internal Revenue
Code of 1954, 68A Stat. 1, 415.
11
1933) (Pl.’s Sur-Reply Ex. D); Indemnify, Black’s Law Dictionary 949 (2d ed. 1910)
(Pl.’s Sur-Reply Ex. E). In addition, the hospital cites the current edition of Black’s Law
Dictionary and secondary definitions of “indemnify” in other dictionaries to the same
effect and argues based on standard rules of statutory construction that if the language of
the statute is unambiguous the court must apply its plain meaning and find that section
3102(b) is money mandating. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438
(1999); Indemnify, Black’s Law Dictionary 886 (10th ed. 2014) (“1. To reimburse . . . for
a loss suffered because of a third party’s or one’s own act or default; hold harmless.”);
Indemnify, Webster’s New International Dictionary of the English Language 1147 (3d ed.
2002 rev.) (Def.’s Reply Ex. E) (“2: to make compensation to for incurred hurt or loss or
damage . . . .”); Indemnify, Webster’s New International Dictionary of the English
Language 1147 (3d ed. 1966) (Def.’s Reply Ex. D) (same as the 2002 edition); Indemnify,
Webster’s New International Dictionary of the English Language 1262 (2d ed. 1942)
(Def.’s Reply Ex. C) (“2. To make restitution or compensation to; reimburse;
compensate; also, to make good (a loss).”); Indemnify, Webster’s New International
Dictionary of the English Language 1093 (1917) (Def.’s Reply Ex. B) (“2. To make
restitution or compensation to, as for a loss, damage, etc.; to make whole; to reimburse;
to compensate; also, to make good (a loss).”); Indemnify, Oxford English Dictionary 195
(1933) (Def.’s Reply Ex. F) (“2. To compensate . . . for loss suffered, expenses incurred,
etc.”); see also Indemnity, Oxford English Dictionary 195 (1933) (“3. Compensation for
loss or damage incurred; indemnification. . . . .”).
12
The hospital further argues that the government’s contention that section 3102(b)
only provides employers with immunity from liability should be rejected on the grounds
that Congress has specified that employers shall not be liable when that was Congress’
intent. The hospital relies primarily on section 3403 of the IRC, which states that an
“employer shall be liable for the payment of the [income] tax required to be deducted and
withheld under this chapter, and shall not be liable to any person for the amount of any
such payment.” IRC § 3403 (emphasis added). The hospital argues that section 3403
demonstrates that Congress knew the difference in meaning between the words
indemnify and immunity from liability and thus the court must find that the terms have
different meanings and cannot be used interchangeably. In support, the hospital cites the
canon of statutory construction that “[w]here Congress includes particular language in
one section of a statute but omits it in another section of the same Act, it is generally
presumed that Congress acts intentionally and purposely in the disparate inclusion or
exclusion.” Sebelius v. Cloer, 133 S. Ct. 1886, 1894 (2013) (quoting Bates v. United
States, 522 U.S. 23, 29-30 (1997)).
The government argues in its motion to dismiss that the phrase “shall be
indemnified” in section 3102(b) is not properly read to require the government to
reimburse an employer that is sued in connection with the collection of FICA taxes.
Rather, the government argues the word “indemnity” is primarily defined by dictionaries
to mean “immunity from liability” and further that reading indemnity to mean immunize
is confirmed when the word “indemnified” in section 3102(b) is considered in the context
of the entire tax code.
13
The government supports its reading of section 3102(b) with several dictionaries
from when the statute was written that consistently define “indemnify” in the first
definition to mean immunity from liability. For example, the 1933 edition of Oxford
English Dictionary defined “indemnify” to mean primarily “[t]o preserve, protect, or
keep free from, secure against (any hurt, harm, or loss); to secure against legal
responsibility for past or future actions or events; to give an indemnity to. . . . .”
Indemnify, Oxford English Dictionary 195 (1933) (emphasis omitted) (Def.’s Reply Ex.
F); see also Indemnity, Oxford English Dictionary 196 (1933) (“1. Security or protection
against contingent hurt, damage, or loss; safety. . . . 2. A legal exemption from the
penalties or liabilities incurred by any course of action. . . .”). Similarly, the 1917 and
1942 editions of Webster’s New International Dictionary of the English Language
defined the word “indemnify” first to mean “[t]o save harmless; to secure against loss or
damage.” Indemnify, Webster’s New International Dictionary of the English Language
1262 (2d ed. 1942) (Def.’s Reply Ex. C); Indemnify, Webster’s New International
Dictionary of the English Language 1093 (1917) (Def.’s Reply Ex. B). In the third
edition of Webster’s New International Dictionary of the English Language, “indemnify”
is also first defined to mean “1a: to secure or protect against hurt or loss or damage . . . b:
to exempt from incurred penalties or liabilities . . . ,” Indemnify, Webster’s New
International Dictionary of the English Language 1147 (3d ed. 2002 rev.) (Def.’s Reply
Ex. E); Indemnify, Webster’s New International Dictionary of the English Language 1147
(3d ed. 1966) (Def.’s Reply Ex. D) (same as the 2002 edition).
14
The government continues that its reading of “indemnify” in section 3102(b) to
mean immunity from liability is also supported by many courts that have examined
whether employees can sue their employer over withholding and payment of FICA taxes
based on the language in section 3102(b). In each of the below-cited cases, the court held
that there is no private right of action for an employee to sue an employer over FICA
taxes and that employers are immune from liability. See Umland v. PLANCO Fin. Servs.,
Inc., 542 F.3d 59, 65-69 (3d Cir. 2008); McDonald v. S. Farm Bureau Life Ins. Co., 291
F.3d 718, 724-25 (11th Cir. 2002); Childers, 36 F. Supp. 3d at 302; Glanville v. Dupar,
Inc., 727 F. Supp. 2d 596, 602 (S.D. Tex. 2010); Powell v. Carey Int’l, Inc., 514 F. Supp.
2d 1302 (S.D. Fla. 2007); Paukstis v. Kenwood Golf & Country Club, Inc., 241 F. Supp.
2d 551 (D. Md. 2003); White v. White Rose Food, a Div. of DiGiorgio Corp., 62 F. Supp.
2d 878 (E.D.N.Y. 1999); Salazar v. Brown, 940 F. Supp. 160 (W.D. Mich. 1996);
DiGiovanni v. City of Rochester, 680 F. Supp. 80 (W.D.N.Y. 1988)). 6 The government
explains that a holding that section 3102(b) allows for private actions against employers,
and then authorizes suits by employers for reimbursement against the government, would
turn the entire refund scheme on its head. As discussed below, the government argues
that IRC section 7422 makes plain that anyone challenging withholdings must first go to
6
The government also argues that if there is any ambiguity as to whether section 3102(b) is an
immunity provision and not money-mandating, the statute must be interpreted in a manner that
does not waive sovereign immunity because waivers of sovereign immunity must be strictly
construed. Def.’s MTD 13 (citing United States v. Nordic Vill., Inc., 503 U.S. 30, 33-37 (1992));
Def.’s Reply 10. It is not necessary to reach this argument because the court finds the statute is
unambiguously not money-mandating.
15
the IRS for relief and thus there should be no occasion for the government to have to
reimburse an employer in connection with withholding taxes.
The government relies on section 7422, which precludes “any court” from hearing
a case seeking the recovery of taxes assessed or collected until the plaintiff has made a
claim with the IRS. In this way, section 7422 works in tandem with section 3102(b) by
protecting employers from suits by employees while providing employees with an avenue
for relief before the IRS.
The court agrees with the government’s reading of section 3102(b) and finds that
section 3102(b) is an immunity provision and is thus not money mandating. To begin,
the court agrees with the government that the word “indemnified” does not necessarily
mean a right to “reimbursement.” Rather, as discussed above, the court finds that the
better reading of the word comes from the primary definitions in the above-cited
dictionaries, which nearly consistently defined “indemnify” first to mean an exemption
from liability. See, e.g., Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S.
401, 410 (2011) (adopting a word’s “primary meaning” (citing Muscarello v. United
States, 524 U.S. 125, 130, 128 (1998)).
Second, to the extent there is any doubt as to Congress’ intent, the court agrees
with the government that reading section 3102(b) as an immunity provision and not as a
reimbursement provision is confirmed by section 7422, which precludes any court from
considering an employee’s claim for recovery of FICA taxes before the employee files a
claim with the IRS. The court accepts that the hospital’s reading of section 3102(b)
would turn the refund scheme on its head. In this connection, the court agrees with the
16
numerous decisions that have read section 3102(b) as not authorizing a private right of
action by employees to sue employers over the withholding and payment of FICA taxes.
In particular, the court agrees with the Eleventh and Third Circuits, which have
expressly rejected employees’ arguments that section 3102(b)’s indemnification
provision implies a private right of action by an employee against an employer. The
Eleventh Circuit found that that the plaintiff’s contention “that Congress would not have
explicitly indemnified employers if it did not assume that employees would have been
able to bring lawsuits under FICA . . . lacks any textual support.” McDonald, 291 F.3d at
725. Rather, the Eleventh Circuit found that the language at issue “protects employers
who properly deduct FICA taxes from an employee’s wages against claims by employees
that the money withheld and used to pay the tax should have been paid to the employee
as part of his salary.” Id. The Eleventh Circuit further noted that “[b]ecause Congress
requires employers to withhold the FICA contribution and pay the excise tax, it included
the indemnification provision to protect employers from lawsuits by employees who do
not want their salaries reduced in compliance with FICA.” Id. As the Eleventh Circuit
explained, an alternative reading of the statute would be inconsistent with the legislative
and regulatory procedures for employees and employers seeking relief. Id.
Similarly, in Umland v. PLANCO Financial Services, Inc., 542 F.3d at 65-67, the
Third Circuit echoed the McDonald holding and further noted that because the plaintiff’s
breach of contract claims were based on alleged FICA violations, “if we were to read
FICA’s provisions into every employment contract, we would contradict Congress’s
decision not to include expressly a private right of action and our belief that Congress did
17
not intend to imply a private right of action either.” Id. at 67. In addition, the Third
Circuit found that section 7422 preempted the plaintiff’s unjust enrichment claim against
the employer, noting that “[t]his result protects the integrity of the administrative scheme
for tax refunds that Congress has approved and that the IRS has implemented.” Id. at 68
(citing Brennan v. Sw. Airlines Co., 134 F.3d 1405, 1411 (9th Cir. 1998)). These cases
and the others cited by the government make plain that section 3102(b) is an immunity
provision because no other reading is consistent with Congress’ desire to preclude
employees from suing their employer in connection with the employer’s withholding of
FICA taxes. The tax code in section 7422 requires employees to instead seek recovery
from the government. See Clintwood Elkhorn, 553 U.S. at 6-7, 11 (holding that
Congress’ use of the word “any” in section 7422 cannot be ignored and that courts do not
have jurisdiction to hear refund suits before taxpayers go to the IRS, stating “[f]ive
‘any’s’ in one sentence and it begins to seem that Congress meant the statute to have
expansive reach,” and “Congress has indeed established a detailed refund scheme that
subjects complaining taxpayers to various requirements before they can bring suit”).
The court understands that the district court in Childers distinguished the
reasoning in cases dismissing claims based on section 7422 by finding that the medical
residents in the district court litigation had stated tort claims and thus the case could
proceed. 7 The court is also aware that other district courts have read section 3102(b) to
7
The court recognizes that the district court approved a settlement based on some percentage of
FICA taxes the hospital had withheld from the medical residents’ salaries and had paid to the
IRS despite the language in section 7422. However, the fact that the hospital agreed to a
settlement and decided not to litigate the district court cases, and then file an appeal based on
18
imply a private right of action. See Ford v. Troyer, 25 F. Supp. 2d 723, 726 (E.D. La.
1998); Sanchez v. Overmyer, 845 F. Supp. 1178, 1181-82 (N.D. Ohio 1993). Although
this court does not accept the Sanchez or Ford courts’ reasoning, it is important to note
that neither case involved a claim for money from the employer. See Ford, 25 F. Supp.
2d at 725; Sanchez, 845 F. Supp. at 1182. The Sanchez court expressly did not reach the
question of whether section 3102(b) establishes a private cause of action for monetary
damages under FICA. Sanchez, 845 F. Supp. at 1182.
Moreover, the reasoning of Ford, Sanchez, and Childers has been rejected in
several cases and this court elects to follow those precedents. See Chalfin v. St. Joseph’s
Healthcare Sys., 629 F. App’x 367, 368-69 (3d Cir. 2015) (finding that the plaintiffs’
claim for negligent failure to obtain tax refunds was, in essence, a lawsuit for a tax refund
requiring exhaustion of administrative remedies under section 7422); Reuss v. Orlando
Health, Inc., 140 F. Supp. 3d 1299, 1308-09 (M.D. Fla. 2015) (finding that the employer
had no fiduciary duty to file protective FICA tax refund claim and that the claim was, “at
its core, a claim for a tax refund and is therefore preempted by 26 U.S.C. § 7422 which
provides for civil actions for tax refunds”); see also Glanville, 727 F. Supp. at 602
(following the Eleventh Circuit’s reasoning in McDonald and finding no implied private
section 7422 if it had lost on the merits, does not mean that the hospital’s settlement shows that
there is a reason to read section 3102(b) as a reimbursement provision. Regardless of how the
settlement was characterized, the district court did not have jurisdiction to refund FICA taxes to
the medical residents for the reasons discussed above.
19
right of action under FICA); Berger v. AXA Network, LLC, No. 03 C 125, 2003 WL
21530370, at *4 (N.D. Ill. July 7, 2003) (same).
The court also finds the hospital’s reliance on other cases which interpret the word
“indemnify” to support its reading of section 3102(b) unpersuasive. Pl.’s Resp. 18-19
(citing Indian Harbor Ins. Co. v. United States, 704 F.3d 949, 958 (Fed. Cir. 2013); Gro-
Green Prods., Inc. v. United States, 3 Cl. Ct. 639, 643 (1983); Black Leaf Prods. Co. v.
United States, 4 Cl. Ct. 307 (1984); Richmond Am. Homes of Colo., Inc. v. United States,
75 Fed. Cl. 376, 385 (2007); Sweet v. United States, 53 Fed. Cl. 208, 213 (2002); Am.
Int’l Specialty Lines Ins. Co. v. United States, No. 05-1020, 2008 WL 1990859, at *23
(Fed. Cl. Jan. 31, 2008)). None are tax cases and each deals with a specific statutory
scheme that contemplated government payments. In Indian Harbor Insurance Co. v.
United States, 704 F.3d at 951, the Federal Circuit considered a statute requiring the
Secretary of Defense to “hold harmless, defend, and indemnify in full [subsequent
owners of former military bases] . . . from and against any suit, claim, demand or action,
liability, judgment, cost or other fee arising out of any claim for personal injury or
property damage” arising from environmental contamination. In that case, unlike in this
case, the statute expressly referred to making “indemnification payments.” See National
Defense Authorization Act of 1993, Pub. L. No. 102-484, Div. A, Title IU, § 330, 106
Stat. 2315, 2371 (1992), amended by Pub. L. No. 103-160, Div. A, Title X, § 1002, 107
Stat. 1547, 1745 (1993). Also, the statute specified who was responsible for
indemnification, a time limitation for claims, and other conditions such as an
administrative process a claimant needed to follow. See id.; Indian Harbor Ins. Co. v.
20
United States, 100 Fed. Cl. 239, 243 (2011); see also Richmond Am. Homes of Colo., 75
Fed. Cl. at 385; Am. Int’l Specialty Lines Ins., 2008 WL 1990859, at *23. Similarly, in
Gro-Green Products, Inc. v. United States, 3 Cl. Ct. at 643, and Black Leaf Products Co.
v. United States, 4 Cl. Ct. at 308-10, the Claims Court found that plaintiffs that had
followed a statutorily mandated process were entitled to damages under section 15 of the
Federal Insecticide, Fungicide, and Rodenticide Act, which requires the Administrator of
the EPA to “make an indemnity payment” to qualified persons under certain conditions.
Finally, in Sweet v. United States, 53 Fed. Cl. at 213, this court found that plaintiffs were
entitled to reimbursement of certain costs under an express agreement with the
government executed pursuant to the Atomic Energy Act of 1954, Pub. L. No. 83-703, 68
Stat. 919 (1954), and the Price-Anderson Act, Pub. L. No. 85-744, 72 Stat. 837 (1958).
None of these cases involve the statutory scheme for payments established in the tax
code, under which section 7422 ensures that all claims related to withheld or paid tax be
first presented to the IRS. See Clintwood Elkhorn, 553 U.S. at 11.
Finally, the court has considered and rejects the hospital’s contention that the court
should read section 3102(b) as a reimbursement provision rather than an immunity
provision because in other sections of the tax code Congress expressly stated that
employers are “not . . . liable” when collecting a tax for the IRS. Specifically, the
hospital relies on IRC section 3403, which states with regard to income tax withholding
that an employer required to withhold income tax from wages “shall not be liable to any
person for the amount of any such payment.”
21
The government correctly argues that the use of different terms in section 3102(b)
and section 3403 does not mean that the terms should be construed differently in this
case. The government explains that use of the phrase “shall not be liable” evolved from
earlier tax code provisions, demonstrating that “indemnity” and “shall not be liable” were
used to mean the same thing. The government explains that this is clear from the IRC
section relating to employer withholding of railroad retirement taxes in section 3202(b).
Section 3202(b) uses both “indemnified” and “not . . . liable” in the same provision to
mean the same thing. See IRC § 3202(b) (“(b)Indemnification of employer.--Every
employer required under subsection (a) to deduct the [railroad retirement] tax shall be
liable for the payment of such tax and shall not be liable to any person for the amount of
any such payment.”).
It is generally true that “[d]ifferent words used in the same, or a similar, statute are
assigned different meanings whenever possible.” Norman Singer & Shambie Singer,
Each word given effect, 2A Sutherland Statutory Construction § 46:6 (7th ed.).
However, in this case, the court agrees with the government that in the various
withholding provisions Congress used the terms interchangeably. Put another way, it is
apparent that Congress did not intend for the terms “indemnified” and “not . . . liable” to
have different meanings. The correctness of the government’s position is most clear from
section 3202(b), which relates to employer withholding of railroad retirement taxes.
Section 3202(b) was enacted two years after section 3102(b) and states in the section
22
entitled “[i]ndemnification of employer,” that the employer “shall not be liable.” 8
Section 3202(b) demonstrates that Congress considered the term “indemnified” to mean
“not liable.” In view of the foregoing, the court has no reason to read section 3403,
regarding employer liability for withholding of income tax, which was enacted in 1943
and uses the words “shall not be liable,” to mean that Congress intended to protect
employers from liability only when Congress used certain words. 9 Rather, the court
accepts that Congress used “indemnify” and “shall not be liable” to mean the same
8
Section 3202(b), regarding withholding of railroad retirement taxes, dates back to a 1935
statute which provided that “[e]very employer required so to deduct the tax is hereby made liable
for the payment of such tax and is hereby indemnified against the claims and demands of any
person for the amount of any such payment made by such employer.” Carriers and Employees
Tax Act of 1935, Pub. L. No. 74-400 § 3(a), ch. 813, 49 Stat. 974, 975; see also Railroad
Retirement Act of 1935, ch. 812, 49 Stat. 967 (establishing a retirement system for railroad
employees subject to the Interstate Commerce Act); Railroad Retirement Act of 1934, ch. 868,
48 Stat. 1283 (found to be unconstitutional in R.R. Ret. Bd. v. Alton R. Co., 295 U.S. 330 (1935)).
After the Carriers and Employees Tax Act of 1935 was found to be unconstitutional, see Alton R.
Co. v. R.R. Ret. Bd., 16 F. Supp. 955, 959 (D.D.C. 1936), Congress replaced the statute with
Carriers Taxing Act of 1937, Pub. L. No. 75-174 §2(a), 50 Stat. 435, 437 (1937), which included
the current language (“shall not be liable”) in section 2(a). The provision was eventually
codified as section 1501(b) in the Internal Revenue Code of 1939, 53 Stat. 1, 179, and recodified
as section 3202(b) in the Internal Revenue Code of 1954, 68A Stat. 1, 431.
9
Section 3403, regarding withholding of income taxes, dates back to the Tariff of 1913, ch. 16,
38 Stat. 114, 170, which made third parties personally liable for withholding income tax at the
source. Section 9(b) of the Revenue Act of 1916, ch. 463, 39 Stat. 756, 763-764, provided that
third parties required to withhold income tax at the source were “hereby indemnified against
every . . . demand whatsoever for all payments which they shall make in pursuance and by virtue
of” the income tax statute. In 1917, Congress amended this provision to require withholding of
income tax at the source (i.e.by employers) only for nonresident aliens. See War Revenue Act
§ 1205, ch. 63, 40 Stat. 300, 332. The current income tax withholding requirement and
immunizing language (“shall not be liable to any person for the amount of any such payment”)
appeared in section 1623 of the Internal Revenue Code of 1939, as amended by the Revenue Act
of 1942, ch. 619, 56 Stat. 798, 891, and the Current Tax Payment Act of 1943, ch. 120, 57 Stat.
126, 137. The provision was then recodified as section 3403 in the Internal Revenue Code of
1954, 68A Stat. 1, 469.
23
thing. 10 The court agrees with the government section 3102(b) is thus an immunity
provision and that a contrary reading would undermine the statutory refund scheme
contrary to Congress’ intent.
V. CONCLUSION
For the reasons above, the government’s motion to dismiss the complaint pursuant
to RCFC 12(b)(1) is GRANTED. The clerk is directed to enter judgment accordingly.
IT IS SO ORDERED.
s/Nancy B. Firestone
NANCY B. FIRESTONE
Senior Judge
10
Because the court concludes that section 3102(b) is not money-mandating, for the reasons
stated, it is not necessary to consider the government’s contention that among the additional
reasons that section 3102(b) is not money-mandating is that it does not establish a process or
even identify the government as the liable entity by its terms. Although the court agrees that
these arguments support the court’s finding that section 3102(b) is not money-mandating, the
court’s reasoning rests on its construction of the word “indemnified.”
24