Franklin v. United States

Case: 21-11104 Document: 00516473202 Page: 1 Date Filed: 09/15/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
September 15, 2022
No. 21-11104
Lyle W. Cayce
Clerk
James Franklin,
Plaintiff—Appellant,
versus
United States; Charles Rettig, in his official capacity as
Commissioner of Internal Revenue; Antony Blinken, Secretary, U.S.
Department of State; Janet Yellen, Secretary, U.S. Department of
Treasury,
Defendants—Appellees.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:20-CV-1303
Before King, Elrod, and Southwick, Circuit Judges. *
King, Circuit Judge:
James Franklin appeals from the dismissal of his claims challenging
tax penalties assessed against him, as well as the revocation of his passport
pursuant to those penalties. He also appeals from the denial of an award of
*
Judge Elrod concurs in the judgment.
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attorneys’ fees under the Freedom of Information Act. For the following
reasons, we AFFIRM.
I.
The Internal Revenue Service (IRS) found that James Franklin had
failed to file accurate tax returns and had not reported a foreign trust of which
he was the beneficial owner, and so it assessed penalties against him. Those
penalties, assessed under 26 U.S.C. § 6677 on July 18, 2016, totaled
$421,766. In 2018, the IRS began its collection efforts against Franklin, filing
a federal tax lien and later levying on Franklin’s Social Security benefits. The
IRS also certified to the Department of State that Franklin had a “seriously
delinquent tax debt” per 26 U.S.C. § 7345 (enacted under the Fixing
America’s Surface Transportation (“FAST”) Act), which led the State
Department to revoke Franklin’s passport.
In response to the penalties, Franklin, through counsel, filed a
Freedom of Information Act (“FOIA”) request seeking: “(1) ‘All relevant
files and their contents . . . for the tax periods 1998 through 2017, including
the entire administrative file relating to any auditor investigation’ and
(2) ‘All relevant files, reports, letters, documents, or workpapers related to
any penalty assessment under I.R.C. § 6677.’” In response, the IRS provided
several documents from Franklin’s administrative file and tax records;
according to Franklin, those documents demonstrate that the IRS did not
comply with statutory procedural requirements that must be satisfied before
the assessment of penalties under § 6677.
Franklin did not file an administrative appeal of the IRS’s response to
his FOIA request; instead, he took the response at face value and assumed
that the IRS had not complied with the procedural requirements (namely,
that the penalties be approved in writing by a supervisor of the determining
agent under 26 U.S.C. § 6751(b)). Franklin therefore filed an offer-in-
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compromise for a nominal sum, asserting a doubt of liability based on the
purported procedural deficiencies. The IRS returned the offer without
processing it, sending two separate letters that said respectively that (1) the
IRS lacked jurisdiction to process the offer because “[i]t is regarding a foreign
return and/or related issues,” and (2) “[o]ther investigations are pending
that may affect the liability sought to be compromised or the grounds upon
which it was submitted,”. Franklin then sent a second offer-in-compromise
based on the same grounds and offering the same nominal settlement.
After these offers-in-compromise were unsuccessful, Franklin filed
this suit. He asserted various claims related to the alleged procedural failure
under § 6751(b) (collectively, the “§ 6751(b) Claims”); those claims were
brought under 26 U.S.C. §§ 7345, 7432, and 7433; 28 U.S.C. § 2410; the
Declaratory Judgment Act; and the Administrative Procedure Act. Franklin
also challenged the constitutionality of the FAST Act’s passport-revocation
scheme, asserting that it violated his rights under the Fifth Amendment.
Franklin later amended his complaint to seek attorneys’ fees under FOIA
after the Government, in its Motion for Partial Dismissal, attached exhibits
that had not been produced in response to Franklin’s FOIA request, which
the Government asserted demonstrated that the penalties had been approved
by the relevant supervisor. In addition to its assertions that the procedural
requirements had been satisfied, the Government’s motion also sought
dismissal of the § 6751(b) Claims for lack of jurisdiction; the Government
later updated its motion and sought either dismissal or summary judgment
on Franklin’s constitutional and FOIA claims.
The district court dismissed all of Franklin’s claims. It first found that
it lacked jurisdiction over each of the various § 6751(b) claims, finding that
each was a prohibited collateral attack on the existence or validity of
Franklin’s tax liability for which the United States had not waived sovereign
immunity. While the district court found that it did have jurisdiction over
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Franklin’s Fifth Amendment challenge to the FAST Act’s passport-
revocation scheme, it also dismissed that claim after finding that the law was
constitutional under rational-basis review. 1 Lastly, the district court found
that while Franklin was eligible for attorneys’ fees under FOIA (because his
lawsuit prompted the IRS to release documents it alleged showed compliance
with § 6751(b)’s procedural requirements), he was not entitled to an award
of fees. Franklin timely appeals.
II.
We first consider whether the district court was correct to find that it
lacked subject-matter jurisdiction over Franklin’s various claims challenging
the tax penalties. “We review questions of subject matter jurisdiction,
including sovereign immunity determinations, de novo.” Daniel v. Univ. of
Tex. Sw. Med. Ctr., 960 F.3d 253, 256 (5th Cir. 2020). When considering
whether the United States has waived its default sovereign immunity,
Franklin “bear[s] the burden of showing Congress’s unequivocal waiver.”
Freeman v. United States, 556 F.3d 326, 334 (5th Cir. 2009) (quoting St.
Tammany Parish ex rel. Davis v. Fed. Emergency Mgmt. Agency, 556 F.3d 307,
315 (5th Cir. 2009)). His claims must be “brought in exact compliance with
the terms of a statute under which the sovereign has consented to be sued.”
Lewis v. Hunt, 492 F.3d 565, 571 (5th Cir. 2007) (quoting Hussain v. Bos. Old
Colony Ins. Co., 311 F.3d 623, 629 (5th Cir. 2002)).
Franklin’s panoply of claims share a common thread: he asserts he is
entitled to damages for various IRS actions because they were based on
penalty assessments that were invalid ab initio due to the IRS’s failure to
1
The district court also found that it did not have jurisdiction over a separate
challenge Franklin raised to the penalties themselves under the Eighth Amendment’s
Excessive Fines Clause, which Franklin does not appeal.
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follow § 6751(b)’s procedural requirements. The district court was correct to
find that each of these claims was a prohibited attempt to collaterally attack
the actual penalties assessed. Under the Anti-Injunction Act, Congress has
provided that, absent limited exceptions, “no suit for the purpose of
restraining the assessment or collection of any tax shall be maintained in any
court by any person.” 26 U.S.C. § 7421(a). Thus, when challenging the
validity of a tax liability, the general rule is that a taxpayer must “pay first and
litigate later.” Flora v. United States, 362 U.S. 145, 164 (1960). “[O]nce a tax
has been assessed, [a] taxpayer . . . has no power to prevent the IRS from
collecting it;” instead, the taxpayer must “pay the tax in full, and then sue
for a refund.” Jones v. United States, 889 F.2d 1448, 1449–50 (5th Cir. 1989).
Courts have zealously guarded this rule, recognizing the importance of the
government’s ability “to assess and collect taxes alleged to be due without
judicial intervention” so that “the United States is [assured] of prompt
collection of its lawful revenue.” Enochs v. Williams Packing & Navigation
Co., 370 U.S. 1, 7 (1962).
We do not shirk that duty today. Each of Franklin’s claims impliedly
challenges the validity of the tax assessment itself. It does not matter that the
procedural deficiency Franklin alleges occurred can technically be construed
as occurring in a separate examination phase or can be characterized as
occurring “pre-assessment.” The Supreme Court has clarified these discrete
steps, see Direct Mktg. Ass’n v. Brohl, 575 U.S. 1, 9–10 (2015), and held that a
challenge to reporting requirements backed by a tax penalty can proceed, CIC
Servs., LLC v. IRS, 141 S. Ct. 1582, 1588–89 (2021). But it has reaffirmed that
a challenge to the assessment or collection of a tax itself is still barred. See Id.
at 1589.
Thus, the distinctions of the various phases of the tax process found
in those cases do not aid Franklin here. This is so because Franklin’s case is
based on a cascade of inferences that necessarily includes a challenge to the
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assessment itself: proper procedures were not followed, therefore the IRS
was not allowed to assess the penalties, therefore the assessed penalties were
invalid, and therefore the IRS engaged in a cavalcade of actions based on the
invalid penalties for which Franklin is owed damages. Franklin cannot state
a claim without following that line of logic, as his challenges are all based on
the alleged procedural deficiency that rendered the assessment void from the
start. And that chain of reasoning features a defective link: it is based on an
assumption that the assessment itself was void. Thus, his claims represent a
challenge to the validity of the assessment over which the courts do not have
jurisdiction.
A look at each of Franklin’s claims confirms that conclusion. His
§ 7432 claim seeks damages for failure to release a lien—because the lien is
based on penalties he states are invalid. His § 7433 claim seeks damages for
wrongful collection activities—namely, trying to collect invalidly assessed
penalties. His § 2410 claim seeks to quiet title to the property subject to the
IRS’s lien—because the lien stems from allegedly invalid penalties. He seeks
a declaratory judgment and consideration under the Administrative
Procedure Act—that the penalty assessments are invalid due to the
procedural deficiencies. And, in addition to his constitutional challenge to
the revocation of his passport, he seeks review of the certification that he has
a “seriously delinquent tax debt”—because the tax debt is based on allegedly
invalid penalties. At every turn, Franklin seeks to overturn the penalties,
restrain collection of them, or otherwise cast doubt on the validity of the
assessment. The government has not waived its sovereign immunity for
those challenges, and so the district court was correct to dismiss them for lack
of jurisdiction.
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III.
We turn to Franklin’s challenge to the constitutionality of the FAST
Act’s passport-revocation scheme. The district court dismissed that claim
under Rule 12(b)(6). “We review a district court’s ruling on a motion to
dismiss de novo, ‘accepting all well-pleaded facts as true and viewing those
facts in the light most favorable to the plaintiffs.’” Anderson v. Valdez, 845
F.3d 580, 589 (5th Cir. 2016) (quoting Dorsey v. Portfolio Equities, Inc., 540
F.3d 333, 338 (5th Cir. 2008)).
Franklin’s constitutional claim is based on his substantive due process
rights under the Fifth Amendment. Substantive due process “protects
individual liberty against ‘certain government actions regardless of the
fairness of the procedures used to implement them.’” Collins v. City of
Harker Heights, 503 U.S. 115, 125 (1992) (quoting Daniels v. Williams, 474
U.S. 327, 331 (1986)).
Generally, liberty interests protected by the Fifth Amendment are
considered under one of two standards: strict scrutiny and rational-basis
review. If a right is fundamental, strict scrutiny applies. Washington v.
Glucksberg, 521 U.S. 702, 720–21 (1997). To survive strict scrutiny, a
governmental restriction of a fundamental right must be “narrowly tailored
to serve a compelling state interest.” Id. at 721 (quoting Reno v. Flores, 507
U.S. 292, 302 (1993)). If a right is not fundamental, then rational review is
applied, and the restriction at issue survives as long as it is “rationally related
to a legitimate government interest.” Reyes v. N. Tex. Tollway Auth., 861 F.3d
558, 561 (5th Cir. 2017).
In turn, to decide if the implicated right is fundamental, that right
must be “carefully describe[d].” Malagon de Fuentes v. Gonzales, 462 F.3d
498, 505 (5th Cir. 2006). In the instant case, the district court correctly
defined the right as “the right to international travel.” We next consider
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whether that right is “‘deeply rooted in this Nation’s history and
tradition’ . . . and ‘implicit in the concept of ordered liberty,’ such that
‘neither liberty nor justice would exist if [the right was] sacrificed.’”
Glucksberg, 521 U.S. at 721 (first quoting Moore v. City of E. Cleveland, 431
U.S. 494, 503 (1977), then quoting Palko v. Connecticut, 302 U.S. 319, 325,
326 (1937)). The Supreme Court has cautioned that, because declaring a right
as fundamental “to a great extent . . . place[s] the matter outside the arena of
public debate and legislative action,” courts should “exercise the utmost care
whenever [they] are asked to break new ground in this field.” Id. at 720
(quoting Collins, 503 U.S. at 125).
Given the Supreme Court’s guidance on restrictions to international
travel, we cannot find that it is a fundamental right such that restrictions on
it merit strict scrutiny. It is true that three of the Supreme Court’s cases
hinted at the possibility that the right to international travel is fundamental.
In Kent v. Dulles, the Court stated that “[t]he right to travel is a part of the
‘liberty’ of which the citizen cannot be deprived without the due process of
law under the Fifth Amendment” and that “[f]reedom of movement is basic
in our scheme of values.” 357 U.S. 116, 125–26 (1958). In Aptheker v. Secretary
of State, the Court held that a law restricting the grant of passports to
members of the Communist Party was an unconstitutional violation of the
petitioner’s rights under the Fifth Amendment. 378 U.S. 500, 504–05 (1964).
In doing so, the Court stated that the law “swe[pt] too widely and too
indiscriminately across the liberty guaranteed in the Fifth Amendment” and
noted that “Congress ha[d] within its power ‘less drastic’ means of achieving
the congressional objective of safeguarding our national security.” Id. at 512–
14 (quoting Shelton v. Tucker, 364 U.S. 479, 488 (1960)). And in Zemel v.
Rusk, the Court seemed to compare the right to international travel favorably
to the fundamental right of interstate travel; it upheld a ban on travel to Cuba
based on “the weightiest considerations of national security,” analogizing to
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the fact that the “freedom [of interstate travel] does not mean that areas
ravaged by flood, fire or pestilence cannot be quarantined.” 381 U.S. 1, 15–16
(1965). The Court stated that just as interstate travel can sometimes be
abridged to protect “the safety and welfare of the area or the Nation as a
whole[,] [s]o it is with international travel.” Id.However, later Supreme Court decisions have consistently and
decisively refuted these earlier suggestions, going to great pains to separate
the right to international travel from the fundamental right to interstate
travel. In Califano v. Aznavorian, the Court noted that its past cases “often
pointed out the crucial difference between the freedom to travel
internationally and the right of interstate travel.” 439 U.S. 170, 176 (1978).
Therefore, the Court made clear that regulations affecting international
travel are “not to be judged by the same standard applied to laws that penalize
the right of interstate travel.” Id. at 177. In so holding, the Court further
explained that “[t]he constitutional right of interstate travel is virtually
unqualified” while “the ‘right’ of international travel has been considered to
be no more than an aspect of the ‘liberty’ protected by the Due Process
Clause of the Fifth Amendment.” Id. at 176 (quoting Califano v. Torres, 435
U.S. 1, 4 n.6 (1978)). “As such this ‘right,’ the Court has held, can be
regulated within the bounds of due process.” Id. (quoting Torres, 435 U.S. at
4 n.6).
The court reiterated this distinction when considering the revocation
of the passport of a former CIA officer who threatened to reveal state secrets
in Haig v. Agee, stating again that “the freedom to travel outside the United
States must be distinguished from the right to travel within the United
States.” 453 U.S. 280, 306 (1981). And it hammered home the point in Regan
v. Wald, explicitly stating that any implication in Kent that the right to
international travel was concomitant with the right to interstate travel had
been “rejected in subsequent cases.” 468 U.S. 222, 241 n.25 (1984). The
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Supreme Court also noted that Kent and Aptheker concerned restrictions on
travel based on a person’s beliefs and associations; their discussions of the
purported fundamental right to international travel thus hinged on protecting
rights derived from the First Amendment that were not implicated in later
cases (and that are not implicated here). See Haig, 453 U.S. at 304; Regan,
468 U.S. at 241 (“First Amendment rights . . . controlled in Kent and
Aptheker.”). Taken together, these decisions of the Supreme Court make
clear that the right (or, more aptly, freedom) to travel internationally is not
fundamental, and thus that restrictions on international travel like the FAST
Act’s passport-revocation scheme are not to be judged under strict scrutiny.
We note that the above conclusion does not necessarily end the
analysis. Franklin is correct in his assertion that the right to international
travel is not a new creation unmoored from our past, but instead can be traced
through the ages from Magna Carta to Blackstone to the Declaration of
Independence to the modern Universal Declaration of Human Rights.
Recognizing that fact, two esteemed members of our sister circuits have
concluded that the right to international travel holds a place somewhere
between the two poles that anchor our substantive-due-process
jurisprudence and should be considered under intermediate scrutiny. Maehr
v. U.S. Dep’t of State, 5 F.4th 1100, 1115 (10th Cir. 2021) (Lucero, J.,
concurring in the judgment) (applying intermediate scrutiny to the FAST
Act’s passport-revocation scheme); Eunique v. Powell, 302 F.3d 971, 978 (9th
Cir. 2002) (McKeown, J., concurring) (applying intermediate scrutiny to a
law revoking passports of those seriously in arrears on child-support
payments). Intermediate scrutiny requires that the challenged restriction
“must serve important governmental objectives and must be substantially
related to achievement of those objectives.” Craig v. Boren, 429 U.S. 190, 197
(1976).
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However, we need not decide whether restrictions that effectively
deprive an individual of the ability to travel outside our borders, like the
passport-revocation scheme before us, should be judged under rational-basis
review or intermediate scrutiny. Even under the higher standard of
intermediate scrutiny, the FAST Act’s passport-revocation scheme is
constitutional. The government’s interest in collecting taxes, which animates
the FAST Act’s passport-revocation scheme, is undoubtedly an important
one. See, e.g., Hernandez v. Comm’r, 490 U.S. 680, 699 (1989) (“[E]ven a
substantial burden would be justified by the ‘broad public interest in
maintaining a sound tax system’” (quoting United States v. Lee, 455 U.S. 252,
260 (1982))); Flora, 362 U.S. at 154 (“It is essential to the honor and orderly
conduct of the government that its taxes should be promptly paid[.]”). The
passport-revocation scheme is also clearly connected to that goal: delinquent
taxpayers will be well-incentivized to pay the government what it is owed to
secure return of their passports, and those same taxpayers will find it much
more difficult to squirrel away assets in other countries if they are effectively
not allowed to legally leave the country.
The FAST Act’s passport-revocation scheme also does not sweep
beyond what is necessary to achieve Congress’s goal of trying to recoup the
$5.8 billion or more in delinquent taxes owed to the government. The
government is not authorized to seize the passport of any person who owes
any taxes. Instead, the scheme is focused on those with serious tax debts and
provides several procedural safeguards through both the tax process and,
ultimately, through a cause of action should the certification itself be
erroneous. Congress was within its rights to provide the IRS another arrow
in its quiver to support its efforts to recoup seriously delinquent tax debts.
And, importantly, what Congress provided was an arrow, not a bazooka. Its
chosen tool is carefully aimed at the problem, not fired indiscriminately with
grave risk of collateral damage to the rights of those not covered by the
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scheme. Under even intermediate scrutiny, the passport-revocation scheme
is constitutional. See Eunique, 302 F.3d at 978 (McKeown, J., concurring)
(upholding a similar passport-revocation scheme for those in serious arrears
on child-support payments under intermediate scrutiny). The district court
was correct to dismiss Franklin’s challenge.
IV.
We last consider whether the district court correctly denied Franklin
attorneys’ fees related to his FOIA request. A district court’s decision on
whether to award attorneys’ fees under FOIA is reviewed for abuse of
discretion. Batton v. IRS, 718 F.3d 522, 525 (5th Cir. 2013). An award of fees
under FOIA 2 is considered under a two-pronged test: first considering fee
eligibility and second considering entitlement to the award of fees. Id. “The
eligibility prong asks whether a plaintiff has substantially prevailed and thus
may receive fees. If so, the court proceeds to the entitlement prong and
considers a variety of factors to determine whether the plaintiff should receive
fees.” Id. (quoting Brayton v. Office of the U.S. Trade Representative, 641 F.3d
521, 524 (D.C. Cir. 2011)). When considering entitlement to fees, courts look
to four factors: “(1) the benefit to the public deriving from the case; (2) the
commercial benefit to the complainant; (3) the nature of the complainant’s
interest in the records sought; and (4) whether the government’s
withholding of the records had a reasonable basis in law.” Id. at 527 (quoting
Texas v. ICC, 935 F.2d 728, 730 (5th Cir. 1991)).
The district court did not abuse its discretion in declining to award
fees. Franklin’s lawsuit is far afield from the purposes for which FOIA, and
its attorneys’ fees provision, were designed. There is no public value in the
information, and no value for anyone other than Franklin. Instead, Franklin
2
5 U.S.C. § 552(a)(4)(E)(i)
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only sought the information to aid him in his personal fight with the IRS
regarding his tax penalties. When considering FOIA attorneys’ fees, we have
generally looked with disfavor on cases with no public benefit. This is
especially true when the information seeker was motivated by a private
commercial interest (such as reversing sizeable tax penalties to avoid paying
hundreds of thousands of dollars to the government). See, e.g., ICC, 935 F.2d
at 733 (“We are persuaded that the information ordered disclosed in Texas’s
suit is so devoid of public benefit that the trial court was within its discretion
in denying Texas’s request for fees.”); Blue v. Bureau of Prisons, 570 F.2d
529, 533–34 (5th Cir. 1978) (“Thus the factor of ‘public benefit’ does not
particularly favor attorneys’ fees where the award would merely subsidize a
matter of private concern; this factor rather speaks for an award where the
complainant’s victory is likely to add to the fund of information that citizens
may use in making vital political choices.”).
That is the case here. Our collective treasury of knowledge is made no
richer through knowing whether or not an IRS supervisor signed forms
authorizing the penalties assessed against Franklin. The public gains no
benefit from that information; only Franklin could as he seeks to overturn
those penalties. The district court did not abuse its discretion in deciding not
to award him attorneys’ fees.
V.
For the foregoing reasons, we AFFIRM.
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