Aloe Vera of America, Inc. v. United States , 580 F.3d 867 ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALOE VERA OF AMERICA, INC., a 
Texas corporation; REX G.
MAUGHAN, husband; RUTH G.
MAUGHAN, wife; MAUGHAN
HOLDINGS INC., an Arizona
corporation,
Plaintiffs-Appellants,
and
GENE YAMAGATA; YAMAGATA
HOLDINGS, INC.,
Plaintiffs,
BUREAU OF NATIONAL AFFAIRS, INC., No. 07-15577
Intervenor,  D.C. No.
v. CV-99-01794-JAT
UNITED STATES OF AMERICA,
Defendant-Appellee,
v.
KIICHIRO HARANO, JUNICHI
HAYAKAWA; YOSHINORI HORIKAWA;
THE YOMIURI SHIMBUN; HITOSHI
UCHIYAMA; TSUENEO WATANABE
TOYOHIKO YAMANOUCHI (Non-party
Witness,)
Movant.

9943
9944 ALOE VERA OF AMERICA v. UNITED STATES
ALOE ALOE VERA OF AMERICA, INC., 
a Texas corporation; REX G.
MAUGHAN, husband; RUTH G.
MAUGHAN, wife; MAUGHAN
HOLDINGS INC., an Arizona
corporation,
Plaintiffs,
BUREAU OF NATIONAL AFFAIRS, INC.,
Intervenor,
and
GENE YAMAGATA; YAMAGATA No. 07-15579
HOLDINGS, INC.,
Plaintiffs-Appellants,  D.C. No.
CV-99-01794-JAT
v. OPINION
UNITED STATES OF AMERICA,
Defendant-Appellee,
v.
KIICHIRO HARANO, JUNICHI
HAYAKAWA; YOSHINORI HORIKAWA;
THE YOMIURI SHIMBUN; HITOSHI
UCHIYAMA; TSUENEO WATANABE
TOYOHIKO YAMANOUCHI (Non-party
Witness,)
Movant.

Appeals from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted
October 24, 2008—San Francisco, California
Filed July 30, 2009
ALOE VERA OF AMERICA v. UNITED STATES 9945
Before: J. Clifford Wallace, Sidney R. Thomas and
Susan P. Graber, Circuit Judges.
Opinion by Judge Wallace
ALOE VERA OF AMERICA v. UNITED STATES 9947
COUNSEL
Terrence D. Woolston and Tim A. Tarter, Woolston & Tarter,
P.C., Phoenix, Arizona, and Edwin B. Wainscott and James
A. Ryan, Quarles & Brady, L.L.P., Phoenix, Arizona, for
plaintiffs-appellants Aloe Vera of America, Inc., Rex G.
Maughan, Ruth G. Maughan and Maughan Holdings, Inc.
Merwin D. Grant and Kenneth B. Vaughn, Grant & Vaughn,
P.C., Phoenix, Arizona, for plaintiffs-appellants Gene Yama-
gata and Yamagata Holdings, Inc.
Richard T. Morrison, Acting Assistant Attorney General, Jon-
athan S. Cohen and Karen G. Gregory, Tax Division, Depart-
ment of Justice, Washington, D.C., for the defendant-
appellee.
OPINION
WALLACE, Senior Circuit Judge:
Aloe Vera of America, Inc., Rex Maughan, Ruth Maughan,
Maughan Holdings, Inc., Gene Yamagata, and Yamagata
Holdings, Inc. (collectively, Aloe Vera), appeal from the dis-
trict court’s summary judgment against them on their claims
under 26 U.S.C. § 7431(a)(1). We must determine whether
the statute of limitations in 26 U.S.C. § 7431(d) is jurisdic-
tional. We vacate and remand.
I.
Rex Maughan (Maughan) is the owner of Aloe Vera of
America, Inc. (AVA), a United States corporation that pro-
cesses and sells aloe vera products in the United States, Japan,
and other countries. Maughan and Yamagata, indirectly
through their respective holding companies, are co-owners of
9948 ALOE VERA OF AMERICA v. UNITED STATES
Forever Living Products Japan, Inc. (FLPJ), a Japanese corpo-
ration that purchases products from AVA.
In 1991 and 1992, AVA paid commissions and royalty-
based income received from FLPJ to Maughan and Yamagata.
The Internal Revenue Service (IRS) was concerned about
whether this income was properly reported in the United
States. Consequently, on April 26, 1996, the IRS sent a letter
to the Japanese National Taxing Authority (NTA), proposing
that the authorities simultaneously examine the tax reports of
AVA, Maughan, Yamagata, and FLPJ. The letter estimated
that for tax years 1991 and 1992, Maughan and Yamagata
failed to report commission and royalty income from AVA
product sales to FLPJ, totaling more than $32 million. In
August 1996, the IRS and NTA held a meeting to discuss the
examination. During this time, Aloe Vera apparently did not
know about the examination and did not know that the NTA
and IRS were disclosing information to each other.
On August 15, 1996, the IRS notified Maughan and AVA
of the simultaneous examination. This appears to be the first
notification that Maughan and AVA had of the investigation.
At the end of 1996, the NTA made an audit proposal to FLPJ,
which FLPJ rejected, and in early 1997, the NTA sent correc-
tion notices to FLPJ regarding its tax liabilities. In February
1997, the IRS sent letters to Maughan and AVA to propose
tax adjustments. Shortly thereafter, on March 4, 1997, Maug-
han and AVA took the offensive and filed requests pursuant
to the Freedom of Information Act for copies of documents
exchanged by the NTA and the IRS during the simultaneous
examination.
On October 9, 1997, Japanese news sources reported that
Aloe Vera had failed to report income of 7.7 million yen (at
the time, approximately $60 million) to tax authorities. The
Japanese reporters attributed this information to unidentified
“tax sources” and the IRS. After the news of the simultaneous
examination leaked, Aloe Vera lodged a complaint with the
ALOE VERA OF AMERICA v. UNITED STATES 9949
United States Competent Authority, accusing the NTA of
intentionally disclosing tax information to the public. After an
investigation, the Competent Authority found no proof that
the NTA had leaked the information.
On October 6, 1999, Aloe Vera filed a complaint against
the United States government in the district court under 26
U.S.C. § 7431(a), containing two counts. In Count I, Aloe
Vera alleged that the IRS had disclosed false information to
the NTA in violation of 26 U.S.C. § 6103(a). In Count II,
Aloe Vera alleged that the IRS had further violated section
6103 by disclosing certain tax information to the NTA even
though the IRS knew or should have known that the NTA
would leak the information.
The government moved to dismiss the complaint on several
grounds, including that the complaint was barred on jurisdic-
tional grounds by the two-year statute of limitations contained
in section 7431(d). The district court held that the statute of
limitations in that section was not jurisdictional, but neverthe-
less dismissed the complaint (with leave to amend) because
Aloe Vera had failed to plead a date of discovery of the alleg-
edly unauthorized disclosures within the two-year limitations
period. After Aloe Vera filed an amended complaint, the court
refused to dismiss the action as untimely because the
amended complaint included an allegation that Aloe Vera did
not discover the nature of the IRS disclosures to the NTA
until August 1998, when Aloe Vera received disclosures
under the Freedom of Information Act pursuant to a court
order.
Subsequently, the government moved for summary judg-
ment on both counts, and Aloe Vera moved for summary
judgment on Count I. The district court granted the govern-
ment’s motion on both counts. As to Count I, the district court
held that the government’s disclosure of allegedly false infor-
mation to the NTA did not violate section 6103(a). As to
Count II, the district court held that Aloe Vera had not raised
9950 ALOE VERA OF AMERICA v. UNITED STATES
a genuine issue of material fact as to whether the IRS knew
or should have known, prior to October 1997, that the NTA
routinely leaked information received under the treaty. Aloe
Vera timely appealed, challenging the district court’s sum-
mary judgment on both counts.
We review de novo both the district court’s summary judg-
ment and its interpretation of the Internal Revenue Code. Sid-
diqui v. United States, 359 F.3d 1200, 1202 n.2 (9th Cir.
2004). We review de novo the district court’s denial of a
motion to dismiss. Silvers v. Sony Pictures Entm’t, Inc., 402
F.3d 881, 883 (9th Cir. 2005) (en banc).
II.
[1] Aloe Vera sued the government under 26 U.S.C.
§ 7431(a)(1), which allows a taxpayer to bring a civil action
for damages against the government when an officer or
employee of the government “knowingly, or by reason of neg-
ligence, inspects or discloses any return or return information
with respect to a taxpayer” in violation of section 6103. Sec-
tion 7431(d) provides that any claim for wrongful disclosure
of tax return information “may be brought . . . at any time
within 2 years after the date of discovery by the plaintiff of
the unauthorized inspection or disclosure.”
The Supreme Court recently explained that when the
United States is named as a defendant in an action, a statute
of limitations, such as the one in section 7431(d), falls into
one of two categories. See John R. Sand & Gravel Co. v.
United States, 128 S. Ct. 750, 753 (2008). The first category
includes those statutes of limitations that “seek primarily to
protect defendants against stale or unduly delayed claims.” Id.These statutes of limitations are subject to forfeiture and
waiver, and the statutes may be equitably tolled. Id.[2] The second category includes those statutes of limita-
tions that “seek not so much to protect a defendant’s case-
ALOE VERA OF AMERICA v. UNITED STATES 9951
specific interest in timeliness as to achieve a broader system-
related goal, such as . . . limiting the scope of a governmental
waiver of sovereign immunity.” Id. (citations and internal
quotation marks omitted). These latter statutes of limitations
are “more absolute” and are not subject to waiver or equitable
tolling, and the time limits imposed are considered jurisdic-
tional. Id.; see also United States v. Dalm, 494 U.S. 596, 608
(1990) (“[T]he United States, as sovereign, is immune from
suit, save as it consents to be sued . . . and the terms of its
consent to be sued in any court define that court’s jurisdiction
to entertain the suit” (internal quotation marks omitted)).
Because jurisdictional questions must be decided prior to
reaching the merits of a case, we must first determine whether
the limitations period provided in section 7431(d) falls into
this latter category of jurisdictional statutes of limitations.
Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S.
422, 430-31 (2007); see also Hansen v. Dep’t of Treasury,
528 F.3d 597, 600 (9th Cir. 2007) (holding that an appellate
court “has a special obligation to satisfy itself not only of its
own jurisdiction, but also that of the lower courts in a cause
under review” (internal quotation marks omitted)). Reviewing
this issue de novo, United States v. Park Place Assocs., Ltd.,
563 F.3d 907, 918 (9th Cir. 2009), we conclude that it does.
[3] Our first reason for this conclusion is that the structure
of section 7431 indicates that Congress intended the limitation
period to restrict the scope of the government’s waiver of sov-
ereign immunity. Section 7431(a) begins with the statement
that “[i]n general,” taxpayers may bring a civil action for
damages against the government for unlawful inspection or
disclosure of tax returns or tax return information. The
remainder of section 7431, however, limits the scope of that
general waiver of immunity. Section 7431(b) provides a cate-
gorical exception to the waiver—the government shall not be
liable for inspection or disclosure “(1) which results from a
good faith, but erroneous, interpretation of section 6103, or
(2) which is requested by the taxpayer.” Finally, the section
9952 ALOE VERA OF AMERICA v. UNITED STATES
at issue here, section 7431(d), limits the time period in which
the taxpayer may bring an action. Section 7431 as a whole
therefore operates to “limit[ ] the scope of a governmental
waiver of sovereign immunity,” thus strongly indicating that
the limitations period provided is jurisdictional. See John R.
Sand, 128 S. Ct. at 753.
[4] In addition, the language of section 7431(d) shows that
Congress intended the statute of limitations to be absolute.
The inclusion of the phrase “[n]otwithstanding any other pro-
vision of law” at the beginning of the subsection requires that
an action may be brought only within the two-year period. No
provision of law may abrogate that prescription, including any
provision that may provide for equitable tolling or waiver. By
including this phrase, Congress clearly signaled that the stat-
ute of limitations is absolute.
Nevertheless, Aloe Vera argues that our decision in
Cedars-Sinai Medical Center v. Shalala, 125 F.3d 765 (9th
Cir. 1997) compels a different result. To the extent that
Cedars-Sinai is still valid after John R. Sand, see Marley v.
United States, 567 F.3d 1030, 1036 n.3 (9th Cir. 2009), the
holding in Cedars-Sinai does not dictate the jurisdictional
nature of section 7431(d). In Cedars-Sinai, we held that the
statute of limitations in 28 U.S.C. § 2401(a) was not jurisdic-
tional. 125 F.3d at 770. We followed Irwin v. Department of
Veterans Affairs, 498 U.S. 89, 95-96 (1990), the Supreme
Court case which established that “the same rebuttable pre-
sumption of equitable tolling applicable to suits against pri-
vate defendants should also apply to suits against the United
States.” As in Irwin, we stated that “Congress can create a
strictly jurisdictional limitations period if it wishes.” Cedars-
Sinai, 125 F.3d at 770; see Irwin, 498 U.S. at 96. In John R.
Sands, the Court reiterated that “statutory language, for exam-
ple, could rebut the presumption [of equitable tolling] by
demonstrating Congress’ intent to the contrary.” 128 S. Ct. at
756. As discussed above, the language and structure of the
ALOE VERA OF AMERICA v. UNITED STATES 9953
statute indicate that Congress intended to create a jurisdic-
tional limitations period.
[5] For these reasons, we conclude, as the Fifth Circuit has
in Gandy v. United States, 234 F.3d 281, 283 (5th Cir. 2000),
that section 7431(d) is jurisdictional. Therefore, we cannot
rule on the merits of the case unless the action was timely
filed.
III.
[6] We next turn to the question of whether Aloe Vera
timely filed its action. Section 7431(d) provides that an action
must be brought within two years of the “date of discovery by
the plaintiff of the unauthorized inspection or disclosure.” 26
U.S.C. § 7431(d). Although the statute could be clearer, we
hold that the statute begins to run on the date on which a
plaintiff discovers that the allegedly unauthorized inspection
or disclosure has taken place, regardless of whether the plain-
tiff believed at that time that the inspection or disclosure was
authorized. We conclude that “unauthorized” merely modifies
“inspection or disclosure.” So construed, an action pursuant to
section 7431(d) must be filed within two years of the date of
discovery of the supposedly improper disclosure, not the date
when the plaintiff realizes that a disclosure was unauthorized.
Cf. United States v. Kubrick, 444 U.S. 111, 123 (1979) (hold-
ing that the date an action accrues under the Federal Tort
Claims Act is the date when the plaintiff becomes aware of
his injury, not the date when the plaintiff discovers that the
alleged injury may have resulted from negligence, or the date
when a plaintiff recognizes the legal claim).
In this case, the district court ruled that the complaint was
timely filed based on allegations in the amended complaint
that Aloe Vera “did not discover the unauthorized disclosures
by the IRS until August 7, 1998 . . . as a result of a disclosure
order . . . in a Freedom of Information Act suit.” The court
9954 ALOE VERA OF AMERICA v. UNITED STATES
then held that the complaint, which was filed on October 6,
1999, had been timely filed.
The district court did not make findings of fact as to
whether Aloe Vera knew, more than two years before it filed
the complaint, that the IRS had disclosed information to the
NTA. Nor did it make findings of fact as to when Aloe Vera
discovered the specific disclosures it now claims were false.
Rather, the district court relied exclusively on the amended
complaint’s allegation that Aloe Vera did not discover that the
disclosures by the IRS were unauthorized until August 1998.
[7] But the determination of jurisdiction requires more. As
described above, the proper date from which to measure the
timeliness of the complaint under section 7431 is the date
when Aloe Vera discovered the respective disclosures, not the
date when Aloe Vera discovered that the disclosures were
unauthorized. The pleadings alone are inadequate to make this
determination. We therefore vacate the district court’s sum-
mary judgment and remand the case to the district court so
that it can determine in the first instance whether there is suf-
ficient evidence to establish subject matter jurisdiction pursu-
ant to section 7431(d). See Trentacosta v. Frontier Pac.
Aircraft Indus., Inc., 813 F.2d 1553, 1558-59 (9th Cir. 1987)
(holding that where a motion to dismiss “ ‘challenges the
actual existence of subject matter jurisdiction, . . . the pleader
must establish jurisdiction with evidence from other sources
[than the allegations in the complaint], such as affidavits or
depositions’ ”), quoting 5 C. Wright & A. Miller, Federal
Practice and Procedure § 1363, at 653-54 (1969).
IV.
On remand, the district court shall make findings of fact
regarding the dates on which Aloe Vera discovered the
respective disclosures underlying each of Aloe Vera’s claims.
With respect to Count I, the district court shall make findings
of fact regarding the dates on which Aloe Vera discovered
ALOE VERA OF AMERICA v. UNITED STATES 9955
each allegedly false disclosure. The court shall have jurisdic-
tion over only those claims related to disclosures, if any, that
were discovered within the two-year statutory period. With
respect to Count II, the district court shall make findings of
fact regarding the dates on which Aloe Vera discovered that
the IRS had disclosed information to the NTA. If, after mak-
ing these factual findings, the district court holds, and we
agree, that there is subject matter jurisdiction in this case, we
will consider the merits of the appeal from the summary judg-
ment. This panel will retain the appeal if the case returns to
this court.
VACATED AND REMANDED.