935 F. 2d 275 - O'Connor v. United States of America

MEMORANDUM**

Dennis and Marilyn O'Connor appeal pro se the district court's summary judgment in favor of the United States in their action for a refund of taxes withheld from Dennis O'Connor's wages from 1981 to 1986. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291, and affirm.

We review a summary judgment de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 110 S.Ct. 3217 (1990). Summary judgment is appropriate if the evidence "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

* Injunctive and Declaratory Relief

The district court lacked jurisdiction to consider the O'Connors' suit for injunctive relief under the Anti-Injunction Act ("Act"). See 26 U.S.C. Sec. 7421(a). The Act prohibits a taxpayer from bringing a "suit for the purpose of restraining the assessment or collection of any tax...." Id. The Act is strictly enforced. See Maxfield v. United States Postal Serv., 752 F.2d 433, 434 (9th Cir.1984); see also Bob Jones Univ. v. Simon, 416 U.S. 725, 736-37 (1974). Thus, ordinarily taxpayers are limited in district court "to suits for refund." United States v. Condo, 782 F.2d 1502, 1506 (9th Cir.1986).

The only exception to this bar is the two-prong test announced in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962). Under Enochs, injunctive relief is available if the taxpayer can demonstrate that (1) under no circumstances could the government prevail, and (2) the taxpayer will be irreparably harmed if the injunction is not granted. Id.; see also Condo, 782 F.2d at 1506.

Here, the O'Connors' only arguments are that they are entitled to a refund of taxes because wages are not income and Dennis O'Connor was not an employee. We have previously rejected the argument that wages are not income. See Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir.1988). The O'Connors admitted in their complaint that Dennis O'Connor was employed by the Bally Grand Hotel in Reno, and was therefore an employee within the definition of 26 U.S.C. 3401(c). Thus, because the O'Connors failed to demonstrate that under no circumstances could the government prevail, as required under the Enochs test, the district court correctly determined that it lacked jurisdiction to hear their claim for injunctive relief.

Similarly, declaratory relief also was unavailable to the O'Connors. The Declaratory Judgment Act ("DJA") provides that declaratory relief is available "except with respect to Federal taxes...." 28 U.S.C. Sec. 2201. The purpose of the federal tax exception to the DJA is to protect the government's ability to assess and collect taxes and to limit taxpayers to suits for refund. California v. Regan, 641 F.2d 721, 722 (9th Cir.1981). "The federal tax exception to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act." Id. at 723 (quotation omitted).

Because the O'Connors failed to meet the Enochs exception to the Anti-Injunction Act, they also fail to qualify for relief under the DJA.

In their complaint, the O'Connors challenge their tax liability for tax years 1981-86. A decision by a court of competent jurisdiction determining a person's tax liability for a given year bars the taxpayer from challenging the tax liability in a subsequent proceeding. Commissioner v. Sunnen, 333 U.S. 591, 598 (1948); United States v. Carter, 906 F.2d 1375, 1378 (9th Cir.1990). The tax court has already litigated and determined the O'Connors' tax liability for tax years 1981, 1982, and 1983. Thus, the O'Connors are barred by res judicata from relitigating their tax liability for those years. See Sunnen, 333 U.S. at 598.

The Internal Revenue Code ("Code") provides that no suit to recover a tax alleged to have been erroneously or illegally collected shall be maintained until a claim for refund has been filed with the Secretary. 26 U.S.C. Sec. 7422(a). Here, the O'Connors never filed a claim for refund for tax years 1985 and 1986. Accordingly, the district court found that it was without jurisdiction to hear the O'Connors' claims regarding those tax years.

With regard to tax liability for 1984, the O'Connors' only claim was that Dennis was not an employee within the definition of section 3401(c) of the Code. However, the O'Connors admitted in their complaint that Dennis was employed by the Bally Grand Hotel in Reno. Thus, the district court correctly found that this claim was frivolous and did not raise a triable issue of fact.

Furthermore, the district court also correctly dismissed the O'Connors' claim for a return of penalties assessed under 26 U.S.C. Sec. 6682 because, as discussed above, there was no reasonable basis for the O'Connors' claim that Dennis was not an employee.

Finally, the district court correctly dismissed the O'Connors' claim that the withholding of Dennis O'Connor's wages without a prior hearing violated due process. No hearing is required prior to the assessment or collection of taxes because the taxpayer has the opportunity to bring a petition for redetermination in tax court or to pay the tax and sue for a refund in district court. Stonecipher v. Bray, 653 F.2d 398, 403 (9th Cir.1981), cert. denied, 454 U.S. 1145 (1982).

The O'Connors brought a claim under the Privacy Act, 5 U.S.C. Sec. 552a, seeking access to records regarding their tax liability. However, the Privacy Act "shall not be applied, directly or indirectly, to the determination of the existence or possible existence of liability (or the amount thereof) of any person for any tax, penalty, interest, fine, forfeiture." 26 U.S.C. Sec. 7852(e). Thus, district courts lack jurisdiction to hear Privacy Act claims regarding tax liability. England v. Commissioner, 798 F.2d 350, 352 (9th Cir.1986). Accordingly, the district court correctly determined that it lacked jurisdiction to hear the O'Connors' Privacy Act claims.

The O'Connors also brought a claim under the Freedom of Information Act ("FOIA"), 5 U.S.C. Sec. 552, seeking access to Internal Revenue Service ("IRS") documents. The district court found that the IRS had properly redacted information regarding third party tax returns and investigatory records compiled for law enforcement purposes, the production of which would interfere with enforcement proceedings and/or constitute an invasion of personal privacy. See 26 U.S.C. Sec. 6103; 5 U.S.C. Sec. 552(b)(7)(C). The United States submitted evidence in support of summary judgment showing that all documents which were withheld or redacted fell into one of these categories for which disclosure is prohibited. The O'Connors failed to raise a triable issue of fact that any exception applied which would permit disclosure under FOIA. Accordingly, the district court correctly granted summary judgment for the United States on the FOIA claim. See Celotex Corp. v. Cattrett, 477 U.S. 317, 324 (1986).

The O'Connors brought a claim against Judge Wolfe, who presided over their case in tax court, claiming due process violations.1 Judges are absolutely immune from civil liability for damages unless they act in the absence of all jurisdiction. Stump v. Sparkman, 435 U.S. 349, 355-57 (1978). The O'Connors offered no evidence that Judge Wolfe acted in the absence of all jurisdiction. Thus, the district court correctly dismissed the claim against him on immunity grounds.

The O'Connors brought a claim2 against defendant Johnson, an IRS officer, alleging that Johnson deprived them of due process because he failed to take notice of provisions of the 1939 Code. Government officials are protected by qualified immunity insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person should have known. Anderson v. Creighton, 483 U.S. 635, 638-39 (1987). Because the O'Connors failed to state a claim that Johnson violated a clearly established constitutional right, the district court correctly dismissed the claim against him.

The O'Connors appear to argue on appeal that their claim against defendant Dean should not have been dismissed. However, the O'Connors voluntarily dismissed their claim against Dean. Thus, they cannot resurrect this claim on appeal. See Stevens Technical Serv., Inc. v. SS Brooklyn, 885 F.2d 584, 588 (9th Cir.1989).

We review the denial of a recusal motion for abuse of discretion. Sewer Alert Comm. v. Pierce County, 791 F.2d 796, 798 (9th Cir.1986). A motion for recusal of a judge pursuant to 28 U.S.C. Sec. 144 will be granted only upon a showing of bias or prejudice from an extrajudicial source. Toth v. Trans World Airlines, Inc., 862 F.2d 1381, 1388 (9th Cir.1988). The standard for recusal is "whether a reasonable person with knowledge of all the facts would conclude that the judge's impartiality might reasonably be questioned." United States v. Studley, 783 F.2d 934, 939 (9th Cir.1986). The judge against whom the motion for recusal is filed may determine the legal sufficiency of the affidavit. Id.; United States v. Azhocar, 581 F.2d 735, 738 (9th Cir.1978), cert. denied, 440 U.S. 907 (1979).

The O'Connors alleged bias based on their dispute with Judge Reed's former law firm over a bill for $273.90 for legal services, the fact that a former partner of Judge Reed's had insulted Marilyn O'Connor, their belief that Judge Reed was hostile to nontaxpayers, and their charges that Judge Reed had acted improperly both as Chief Judge and in refusing to recuse himself from a related case filed by the O'Connors. Judge Reed, after considering all the allegations and taking them as true, found that these allegations did not present reasonable grounds for a finding of bias or appearance of bias.

Given the circumstances, we cannot find that Judge Reed abused his discretion in reaching this conclusion. See Sewer Alert Comm., 791 F.2d at 798. A dispute over a bill with the Judge's former law firm would not necessarily lead a reasonable person to question the judge's impartiality. See id. Allegations regarding Judge Reed's performance as Chief Judge and in a related case fail to point to an extrajudicial source of prejudice. See Studley, 783 F.2d at 939. Allegations based on conclusory personal belief are insufficient to establish bias. See United States v. Monaco, 852 F.2d 1143, 1147 (9th Cir.1988), cert. denied, 488 U.S. 1040 (1989).3

The United States requests sanctions against the O'Connors for bringing this appeal. This court has discretion to impose damages against litigants, even pro se, as a sanction for bringing a frivolous appeal. Fed.R.App.P. 38; 28 U.S.C. Sec. 1912; Wilcox v. Commissioner, 848 F.2d 1007, 1008-09 (9th Cir.1988) ($1,500 sanction imposed on pro se litigant for bringing a frivolous appeal). An appeal is frivolous if the results are obvious or the arguments of error are wholly without merit. Wilcox, 848 F.2d at 1009. The O'Connors's claims are wholly without merit. Accordingly, we impose $1,500 damages as a sanction.

AFFIRMED.