Brach v. United States

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
__________________________
ERNESTO BRACH,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
2011-5088
__________________________
Appeal from the United States Court of Federal
Claims in case no. 10-CV-478, Judge Nancy B. Firestone.
__________________________
Decided: October 12, 2011
__________________________
ERNESTO BRACH, of Brooklyn, New York, pro se.
ROBERT J. BRANMAN, Attorney, Tax Division, United
States Department of Justice, of Washington, DC, for
defendant-appellee. With him on the brief were GILBERT
S. ROTHENBERG, Acting Deputy Assistant Attorney Gen-
eral, MICHAEL J. HAUNGS and ROBERT J. BRANMAN, Attor-
neys.
__________________________
BRACH v. US 2
Before NEWMAN, CLEVENGER, and O’MALLEY, Circuit
Judges.
CLEVENGER, Circuit Judge.
This appeal, brought by taxpayer Ernesto Brach pro
se, concerns his claim that the Internal Revenue Service
(“the IRS”) promised to pay him a tax refund and his
attempt to recover that amount on a contract theory. The
Court of Federal Claims dismissed Mr. Brach’s case for
lack of subject matter jurisdiction. Brach v. United
States, 98 Fed. Cl. 60 (Mar. 9, 2011) [hereinafter Dis-
missal Opinion]. We disagree that the Court of Federal
Claims lacked subject matter jurisdiction, but neverthe-
less affirm because Mr. Brach failed to state a claim upon
which relief could be granted.
I
Mr. Brach claims he overpaid his taxes in 1999 and
2000 and seeks to recover the balance allegedly owed him.
He filed his 1999 return roughly five and a half years late.
In that return, Mr. Brach claimed a 1999 tax overpay-
ment of about $296,000. But he did not request a refund.
Instead, Mr. Brach asked that his 1999 overpayment
balance be applied to his tax liability for 2000—which
return he had also not timely filed, but instead filed
simultaneously with the 1999 return. Mr. Brach’s 2000
return claimed further tax overpayment (bringing the
total claimed overpayment to over $370,000), but again
carried the balance forward to 2001. This same pattern
repeated for tax years 2001, 2002, 2003, and 2004. While
Mr. Brach did not claim overpayment in these later years,
he asked that his tax liability be paid from the balance
remaining from his claimed overpayments in 1999 and
2000. None of the 1999–2004 returns was filed on time;
all were filed on September 2, 2005. In the 2004 return,
Mr. Brach asked the IRS to refund the remaining claimed
3 BRACH v. US
balance, which was $354,514. See 1999–2004 Form 1040
Docs., J.A. 39–50.
In November 2005 the IRS denied Mr. Brach’s re-
quest. Because his claims for overpayments in 1999 and
2000 were filed more than three years after the payments
were allegedly made, the IRS deemed the claims time-
barred. See I.R.C. § 6511(a) (2000).
We move forward to mid-2008. At that time, Mr.
Brach’s accountant, Herschel Friedman, was in communi-
cation with an IRS agent named Howard Mostovy and
was continuing to press Mr. Brach’s refund claim. In
August of that year, Mr. Friedman and Mr. Mostovy
signed five Form 4549 documents, titled “Income Tax
Examination Changes,” one for each of tax years 1999,
2000, and 2002–2004. These forms laid out a tax account-
ing that essentially matched the claims Mr. Brach had
made in his late-filed tax returns for those years (though
they sought a slightly larger final refund). Form 4549
Docs., J.A. 92–99. Shortly thereafter, Mr. Mostovy’s
supervisor Machelle A. Smith wrote to Mr. Friedman and
indicated that an extension of time was needed “to allow
adequate time for processing of the reports that were
signed and submitted to RA Howard Mostovy.” Ltr. to H.
Friedman fr. M. Smith (Aug. 21, 2008), J.A. 34. With
authority from Mr. Brach, Mr. Friedman signed the form
consenting to an extension of time. Ms. Smith also
signed. Form 872, J.A. 64.
About a month later, Ms. Smith wrote back to Mr.
Friedman. She stated that Mr. Brach had forfeited any
refund that might otherwise be due him from the alleged
1999 and 2000 overpayments by filing his returns for
those years more than three years late. Ltr. to H. Fried-
man fr. M. Smith (Sept. 29, 2008), J.A. 36.
BRACH v. US 4
At first, there was no response from either Mr. Brach
or Mr. Friedman. Then, in January 2010, Mr. Friedman
wrote back. Citing section 6511(h) of the Tax Code, Mr.
Friedman argued that the three year limitations period
for filing returns did not apply to Mr. Brach because until
2005 Mr. Brach was suffering from mental illness that
prevented him from managing his personal and financial
affairs. Ltr. to M. Smith fr. H. Friedman (Jan. 19, 2010),
J.A. 37.
On July 23, 2010, Mr. Brach filed suit in the Court of
Federal Claims for $354,514, the amount he computed as
his refund on his 2004 return.
The government moved to dismiss. It argued that ir-
respective of the provisions of section 6511(h), the claims
to overpayment in 1999 and 2000 were time-barred by
section 6532(a) of the Tax Code because Mr. Brach had
failed to file suit within two years of the date the IRS
mailed Mr. Brach notice that his claim had been disal-
lowed (i.e., November 2005). It also argued that the 2001,
2002, 2003, and 2004 claims should be dismissed because
Mr. Brach had not fully paid his taxes for those years,
which was a jurisdictional prerequisite to suing for a
refund. See Flora v. United States, 352 U.S. 145, 150
(1960) (articulating the “full payment rule”).
In his response brief, Mr. Brach made various argu-
ments that his refund claims should not be dismissed.
Notably for this appeal, he also added a new argument:
that the Form 4549 documents, signed by Mr. Friedman
and Mr. Mostovoy, and referred to by Ms. Smith in her
letter, created a contract by which the IRS agreed to pay
Mr. Brach his entire requested refund. See Brach Opp. to
Gov’t Mot. Dismiss, Dkt. #12, Brach v. United States, No.
10-478, at 11–18 (Fed. Cl. Dec. 7, 2010) [hereinafter Brach
December 7 Brief].
5 BRACH v. US
The Court of Federal Claims sided with the govern-
ment and dismissed Mr. Brach’s action for lack of subject
matter jurisdiction. It held Mr. Brach’s 1999 and 2000
refund claims time-barred under I.R.C. § 6532(a)(1).
Dismissal Op., 98 Fed. Cl. at 67–68. It held Mr. Brach’s
claims concerning the later returns barred by the “full
payment” rule. Id. at 68–69. And it rejected Mr. Brach’s
attempt to style his case as a contract action (which would
have had a longer limitations period). Id. at 69–70. Mr.
Brach timely appealed. This court has jurisdiction over
appeals from the Court of Federal Claims. 28 U.S.C. §
1295(a)(3).
II
This court reviews the Court of Federal Claims’ dis-
missal for lack of subject matter jurisdiction without
deference. Pixton v. B & B Plastics, Inc., 291 F.3d 1324,
1326 (Fed. Cir. 2002).
Mr. Brach argues that the Court of Federal Claims
erred in holding that he failed to make out a basis for the
court’s exercise of jurisdiction. He contends that the
Form 4549 documents signed by his accountant and by
Mr. Mostovy created an enforceable contract, and that the
Court of Federal Claims has authority to adjudicate his
claims arising under that contract. 1
The Court of Federal Claims has jurisdiction under
the Tucker Act to hear claims against the United States
founded on an “express or implied contract.” Trauma
Serv. Grp. v. United States, 104 F.3d 1321, 1324 (Fed. Cir.
1 Because Mr. Brach does not argue there was any
error in the Court of Federal Claims’ conclusions that
§ 6532(a)(1) of the Tax Code time-barred his 1999 and
2000 tax refund requests, and that the full payment rule
barred his other refund claims, we do not take up those
portions of the court’s dismissal order.
BRACH v. US 6
1997); see also 28 U.S.C. § 1491(a)(1) (2006). A plaintiff
before the Court of Federal Claims bears the burden of
establishing that the court has jurisdiction, but can meet
this burden by careful pleading. “A well-pleaded allega-
tion in the complaint is sufficient to overcome challenges
to jurisdiction.” Trauma Serv. Grp., 104 F.3d at 1321.
In this case, Mr. Brach’s complaint does not expressly
describe any contract claim, but his brief opposing dis-
missal does. See Brach Dec. 7 Br. at 11–18. The Court of
Federal Claims, in light of Mr. Brach’s pro se status,
consented to consider the claims in Mr. Brach’s response
brief as a possible basis for jurisdiction, and we will do the
same. See Dismissal Op., 98 Fed. Cl. at 69 n.15; see also
Hughes v. Rowe, 449 U.S. 5, 9 (1980); McZeal v. Sprint
Nextel Corp., 501 F.3d 1354, 1356 (Fed. Cir. 2007)
(“Where, as here, a party appeared pro se before the trial
court, the reviewing court may grant the pro se litigant
leeway on procedural matters, such as pleading require-
ments.”).
Reviewing the Brach December 7 Brief, we disagree
that the contract allegations therein do not invoke the
Court of Federal Claims’ subject matter jurisdiction. To
invoke the court’s jurisdiction, all that was required of
Mr. Brach was to allege the existence of a contract as a
basis for relief. Gould, Inc. v. United States, 67 F.3d 925,
929 (Fed. Cir. 1995). He met that test. His response brief
alleged the existence of an agreement between himself
and the IRS “that Ernesto Brach was entitled to and was
going to receive his claimed tax refunds.” Brach Dec. 7
Br., at 16. In these circumstances, that allegation was
sufficient to bring his contract claim within the Court of
Federal Claims’ adjudicatory power.
This case invokes the distinction between dismissal
for lack of subject matter jurisdiction and dismissal for
7 BRACH v. US
failure to state a claim upon which relief can be granted.
See Gould, 67 F.3d at 929; Spruill v. Merit Sys. Prot Bd.,
978 F.2d 679, 686–87 (Fed. Cir. 1992); also compare Fed.
Cl. Rule 12(b)(1) with Fed. Cl. Rule 12(b)(6). As we have
stated before, a lack of subject matter jurisdiction means
the trial court lacks authority to take up a case’s legal and
factual questions, in any manner. This is distinct from a
dismissal for failure to state a claim, in which the court
exercises its jurisdiction to look at the plaintiff’s legal and
factual assertions and concludes that the plaintiff has not
made the sort of assertions that could lead to relief. See
Engage Learning, Inc. v. Salazar, No. 2011-1007, slip op.
at 11–12 (Fed. Cir. October 5, 2011) (discussing Bell v.
Hood, 327 U.S. 678 (1946)); see also Gould, 67 F.3d at 929
(quoting Do-Well Mach. Shop, Inc. v. United States, 870
F.2d 637, 639–40 (Fed. Cir. 1989)). In our view, the
record here demonstrates that the Court of Federal
Claims did have subject matter jurisdiction over Mr.
Brach’s contract claim.
We read the Dismissal Opinion’s analysis of Mr.
Brach’s contract claim as more closely resembling an
inquiry into whether a claim upon which relief can be
granted has been made than an assessment of whether
subject matter jurisdiction exists. Of course, the Court of
Federal Claims has both the power and the obligation to
dismiss cases in which no claim has been properly stated.
We therefore will review the trial court’s order to see if it
can be affirmed as a dismissal for failure to state a claim.
If, as the trial court apparently believed, Mr. Brach has
failed to state a claim upon which relief can be granted,
then the error in assessing subject matter jurisdiction is
harmless.
In reviewing a dismissal for failure to state a claim,
this court must “accept as true the complaint’s undisputed
factual allegations and should construe them in a light
BRACH v. US 8
most favorable to the plaintiff.” Cambridge v. United
States, 558 F.3d 1331, 1335 (Fed. Cir. 2009). “However, a
plaintiff must plead factual allegations that support a
facially ‘plausible’ claim to relief in order to avoid dis-
missal for failure to state a claim.” Id. (citing Bell Atl.
Corp. v Twombly, 550 U.S. 544, 545–46 (2007)). In a
contract case, this means alleging the elements of contract
formation as well as authority to contract:
The party alleging a contract must show a
mutual intent to contract including an of-
fer, an acceptance, and consideration. A
contract with the United States also re-
quires that the Government representa-
tive had actual authority to bind the
United States. Anyone entering into an
agreement with the Government takes the
risk of accurately ascertaining the author-
ity of the agents who purport to act for the
Government, and this risk remains with
the contractor even when the Government
agents themselves may have been un-
aware of the limitations on their author-
ity.
Trauma Serv. Grp., 104 F.3d at 1325 (internal citations
omitted).
In this case we agree with the Court of Federal
Claims that, even being lenient in analyzing his com-
plaint and his briefing, Mr. Brach has not carried his
burden to allege facts plausibly showing the existence of a
contract between himself and the IRS, obliging the IRS to
pay out the claimed refund.
The burden for a taxpayer to show that the IRS has
agreed to settle his tax liability and promised to make a
payment is a difficult one. See United States v. A.S.
9 BRACH v. US
Kreider Co., 313 U.S. 443, 448–49 (1941); see also West
Publ’g Co. Emps.’ Preferred Stock Assoc. v. United States,
198 Ct. Cl. 668, 676 (1972) (“The Supreme Court has been
very strict in insisting that, before the concept of an
account stated can be used, it must be shown beyond
peradventure that the Government has in fact agreed
with, and communicated to, the taxpayer its intention to
pay a stated sum.”). Reviewing the Form 4549 documents
here, we see no indication of such an agreement. The
documents recite Mr. Brach’s claims as to his refund
computations, but include no express agreement to pay.
Indeed, the documents expressly state that the figures
included therein are subject to subsequent review by the
IRS. But even absent that notation, there is simply no
express commitment in these papers that the IRS would
take any action at all.
Even if such an agreement were in the Form 4549
documents, the government points out that the documents
(1) are insufficient to meet the IRS’s requirements for
agreements of this type, and so are void, and (2) were
never approved by a person authorized to bind the IRS to
make such a payment. Mr. Brach cannot plausibly over-
come these arguments.
The IRS’s authority to settle disputed tax liabilities
(including refund claims) is described in Tax Code sec-
tions 7121 and 7122 and in the Treasury Department’s
implementing regulations. Purported agreements that do
not meet these requirements are not enforceable as con-
tracts binding the IRS. Botany Worsted Mills v. United
States, 278 U.S. 282, 288–89 (1929) (“We think that
Congress intended by the statute to prescribe the exclu-
sive method by which tax cases could be compromised, . . .
and did not intend to intrust the final settlement of such
matters to the informal action of subordinate officials in
the Bureau [of Internal Revenue].”) (emphasis added).
BRACH v. US 10
Mr. Brach alleges that the Form 4549 documents
memorialize a binding contract. But these documents do
not satisfy the regulations under which the IRS may
settle a disputed tax liability. To begin with, they are not
on the forms identified for such agreements. See Treas.
Reg. 301.7121-1(d)(1) (2010) (“All closing agreements
shall be executed on forms prescribed by the Internal
Revenue Service.”); Rev. Proc. 68-16, Sec. 6 (identifying
Form 866 (Agreement As to Final Determination of Tax
Liability) and Form 906 (Closing Agreement As to Final
Determination Covering Specific Matters) as the appro-
priate forms). Neither do the Form 4549 documents
include the formal legal language indicating the IRS’s
intent to settle that the IRS has prescribed for use in such
agreements. See Rev. Proc. 68-16, Ex. F. What text is
present in the Form 4549 documents cannot, as discussed
above, plausibly be construed as creating an affirmative
obligation for the IRS to pay.
Even putting aside all these objections, Mr. Brach can
make no plausible showing that either Mr. Mostovy or
Ms. Smith was authorized to commit the agency in the
manner he suggests. The IRS’s rules expressly describe
the extent to which authority to enter into closing agree-
ments may be delegated and redelegated among the IRS’s
employees. Delegation Order 97 (Rev. 34) (August 18,
1997), 1997 WL 33479266. Those rules do not permit
delegation of such authority to revenue agents, such as
Mr. Mostovy, or to supervisory revenue agents, such as
Ms. Smith. The straightforward application of those rules
to this case makes it beyond Mr. Brach’s capacity to
demonstrate that either Mr. Mostovy or Ms. Smith was
authorized to enter into such an agreement—an issue on
which he bears the burden of pleading and of proof. See
Trauma Serv. Group, 104 F.2d at 1325.
11 BRACH v. US
For these reasons, Mr. Brach’s case must be dismissed
as failing to state a claim under which relief could be
granted. We thus find the Court of Federal Claims’ error
in analyzing subject matter jurisdiction harmless, and
affirm its dismissal of the case.
AFFIRMED.
COSTS
No costs.