Roderick A. Lawson, Mary C. Martin, Lester N. Hoikka v. United States of America, UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA, 99-CV-918 (JMR/FLN), August 22, 2001

Roderick A. Lawson, Mary C. Martin, Lester N. Hoikka v. United States of America

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

99-CV-918 (JMR/FLN)

August 22, 2001

ORDER

This case presents the unfortunate situation which occurs when a sovereign forgets that its power is granted by the public it serves, and instead considers itself the unchallenged master over its citizens. Such a position ill-befits a benignant nation. And such a situation will not be sustained by this Court.

Plaintiffs, Roderick Lawson, Mary Martin, and Lester Hoikka, ask the Court to vacate the final order and Judgment of Dismissal previously entered in this matter on April 24, 2000. Plaintiffs contend the case offers the "extraordinary circumstances" necessary to justify relief under Rule 60(b)(6) of the Federal Rules of Civil Procedure. Defendant, the United States of America, opposes any such relief, arguing the interests of finality militate against disturbing the entered judgment. Plaintiffs' motion is granted; the Order and Judgment of Dismissal are hereby vacated.

I. Background

On April 15, 1997, plaintiffs mailed their 1993 federal income tax returns to the Internal Revenue Service. ¹ Each return claimed an overpayment of income tax and requested a refund. ² The IRS rejected the refund requests on the grounds that they were untimely.

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¹ Under the three-year look-back rule, a taxpayer's potential refund is limited to taxes paid within the three years preceding the filing of the claim for a refund. See 26 U.S.C. ╖ 6511. Amounts withheld from income during a tax year are considered paid on April 15 of the year following the tax year in question. 26 U.S.C. ╖ 6513 (b) (1). Thus, plaintiffs are deemed to have paid their 1993 taxes on April 15, 1994; under the law, they could claim a refund for any excess withholding for their 1993 income taxes until April 15, 1997.

² Plaintiffs Lawson and Martin, a married couple, filed jointly. Plaintiff Hoikka, a single man, filed separately.

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At that time, the IRS applied the "mailbox rule" -- which deems documents filed when they are mailed -- to other filing requirements under the income tax laws, but refused to apply the rule to claims for refunds. Instead, the IRS deemed claims for refunds to be filed when actually received by the agency.

Although plaintiffs' claims would have been timely under the mailbox rule, they were untimely under the standard applied to claims for refunds. When plaintiffs filed suit seeking the refunds, the IRS informed them of the rule, and also of controlling precedent in the Eighth Circuit Court of Appeals accepting this position. Rather than pursue their claims, which were at that time barred by Eighth Circuit law, plaintiffs agreed to voluntarily dismiss their claims with prejudice.

A few months after the entry of final judgment in this case, however, the IRS agreed to apply the mailbox rule to all pending and future claims for refunds. ³ The IRS chose not to make the new policy retroactive to cases in which a final order had been entered prior to January 11, 2001. Based on this change in applicable law, plaintiffs ask the Court to vacate the final judgment and allow their claims to proceed to a determination on the merits.

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³ The IRS's change in policy stemmed from an adverse court ruling regarding its disparate application of the mailbox rule. See Wiesbart v. United States , 222 F.3d 93 (2d Cir. 2000).

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II. Analysis

Rule 60 (b) (6) authorizes relief from final judgments in extraordinary circumstances. Cornell v. Nix , 119 F.3d 1329, 1332-1333 (8th Cir. 1997). Although a change in the governing law can present a basis for relief under Rule 60(b)(6), "a change in the law will not always provide the truly extraordinary circumstances necessary to reopen a case." Ben Hur Construction Co. v. A.S. Goodwin , 116 F.R.D. 281, 284 (E.D. Mo. 1987). Something more is needed to combat "[s]ociety's powerful countervailing interest in the finality of judgments." Kansas Public Employees Retirement System v. Reimer & Kroger Assoc., Inc. , 194 F. 3d 922, 925 (8th Cir. 1999).

The determination of what constitutes extraordinary circumstances is left to the sound discretion of the Court. Id. In exercising its discretion, the Court "may properly give weight to equitable considerations." Id. at 926. Here, equity offers no alternative to the grant of plaintiffs' motion. Plaintiffs, through counsel, prudently agreed to a voluntary dismissal of their claims. Good lawyers know that, when presented with binding precedent adverse to their positions, they must withdraw their claims. Plaintiffs did precisely that in this case.

Here, if plaintiffs had pursued their "unjustified" claims, they would likely have been pending when the Second Circuit spoke and the IRS changed its rule. Had this occurred, the new rule would have encompassed their claims and their requests for refunds would have been considered. Thus, it is only plaintiffs' conscientious decision to remove a precluded claim from the Court's docket that prevents them from recovering the refunds to which they are now entitled under the law. ⁴

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⁴ Defendant concedes plaintiffs' motion is timely and presents a meritorious suit. Def. Mem. Opp. at 6.

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Although finality and repose are essential in a common law system, the Court considers those interests mitigated by other factors. Plaintiffs' action was never decided on the merits, nor was the final judgment appealed. Thus, unlike the situation presented in Ben Hur Construction , the Court does not risk disrupting the natural growth of the law or disturbing an executed judgment by granting plaintiffs' motion. See Goodwin , 116 F.R.D. at 284.

Defendant talismanically chants its concern of prejudice to the United States were the Court to reopen plaintiffs' case. In this regard, the Court directs defendant to the opening paragraph of this Order. Defendant also posits a threat to the government fisc if the Court "open[s] the floodgates of Rule 60(b) motions from every litigant who received an adverse decision on this issue." Def. Mem. Opp. at 6.

Setting aside the fact that the IRS concedes that these taxpayers have, in fact, overpaid their taxes , it strains the Court's credulity to believe plaintiffs' claims for refunds, totaling just over $27,000, present a serious risk to the Republic's financial stability. ⁵ Nor does the Court anticipate a flood of similar motions. It is the unique circumstances of this matter -- in which plaintiffs, through a chronological happenstance, have been injured by their own good-faith actions -that justify relief under Rule 60(b)(6).

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⁵ The Court judicially notes that, in the tax year in question, the IRS received just under $600 billion ($585,774,159) in revenue from individual income taxes. See IRS Tax Statistics, at http://www.irs.gov/tax stats/soi/other tc.html (providing an annual breakdown of revenue by type).

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The Court finds the factors present here -- the change in governing law, the equitable concerns favoring plaintiffs, and a lack of anything but the most fanciful threat of prejudice to defendant -- constitute extraordinary circumstances meriting the relief plaintiffs seek. Accordingly, IT IS ORDERED that:

1. Plaintiffs' motion to vacate the order of dismissal and judgment in this case [Docket No.,18] is granted.

2. The Order of Dismissal [Docket No. 15] and Judgment [Docket No. 16] entered is this case are hereby vacated. Dated: August 22, 2001

_______________________

JAMES M. ROSENBAUM

United States District Judge

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