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Jeda Capital-Lenox, LLC v. Commissioner of the Internal Revenue Service

August 10, 2011

JEDA CAPITAL-LENOX, LLC, PLAINTIFF,
v.
COMMISSIONER OF THE INTERNAL REVENUE SERVICE, IN HIS OFFICIAL CAPACITY;
AND AMERICAN GROUP I CIVIL ENGINEERING, P.C., DEFENDANTS.



The opinion of the court was delivered by: Hon. Glenn T. Suddaby, United States District Judge

MEMORANDUM-DECISION and ORDER

Currently before the Court in this civil action for declaratory relief filed by JEDA Capital-Lenox, LLC ("Plaintiff") against the Commissioner of the Internal Revenue Service in his official capacity ("the Commissioner") and American Group I Civil Engineering, P.C. ("American Group") is the Commissioner's motion to dismiss Plaintiff's claim against it for lack of subject-matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). (Dkt. No. 5.) For the reasons set forth below, the Commissioner's motion is granted, and Plaintiff's Complaint is dismissed in its entirety.

I. RELEVANT BACKGROUND

A. Plaintiff's Claims

Generally, liberally construed, Plaintiff's Complaint claims that the Commissioner wrongfully designated Plaintiff as the alter ego of American Group, because it either "did not consider" or "improperly applied" New York State law. (Dkt. No. 1.)

More specifically, Plaintiff alleges that the designation was incorrect for the following reasons: (1) "[Plaintiff] is properly formed and validly existing as a domestic New York limited liability company in good standing"; (2) "[Plaintiff] was adequately capitalized upon formation through the initial contributions of its members"; (3) "Plaintiff . . . owns no stock and has no ownership interest in Defendant American [Group]"; (4) "New York Education Law § 7202, § 7204 and § 7210 . . . prohibit[] [Plaintiff] from owning any shares in American"; (5) "American has no ownership interest in [Plaintiff]"; (6) "[Plaintiff] and American are completely different companies with completely different businesses"; (7) "[Plaintiff]'s business is essentially that of a landlord in which it provides ground leasing of land to . . . Lowe's Companies, Inc.," an unrelated company; (8) "American provide[s] professional engineering and land surveying services"; (9) "American does not provide ground leasing to anyone and is not a landlord"; (10) "[Plaintiff] does not, and under New York Law, cannot provide professional engineering and land surveying services"; (11) "[o]wnership of . . . [Plaintiff] and American[] is distinctly different"; (12) "[Plaintiff] has two members; Michael O'Neill and Thomas O'Neill"; (13) "Michael O'Neil owns a 10% membership interest in JEDA while Thomas O'Neill owns a 90% membership interest"; (14) "American has one shareholder, Michael O'Neill, who owns 100% of the company's stock"; (15) "[n]either [Plaintiff] nor its members have ever described [Plaintiff] as a division or department of American"; (16) "[u]pon information and belief no documents exist suggesting that [Plaintiff] is a department or division of American"; (17) "[Plaintiff] is not responsible for the business or finances of American and has never guaranteed any debt on behalf of American"; (18) "[Plaintiff] has no business discretion or management authority over American or its directors"; (19) "[Plaintiff] has no employees in common with American and in fact has no employees at all"; (20) "[Plaintiff] has on occasion hired American to provide engineering and surveying services," which "were contracted for through arms length transactions handled in the same business manner as transactions with any other service provider"; (21) "[Plaintiff] keeps its own books and records, files its own tax return and is treated as an independent business and profit center from American"; (22) "[Plaintiff] has no agreement or understanding with American to share in the profits or losses of . . . American"; (23) "[a]s a business practice, [Plaintiff] and American do not co-mingle funds[, but rather] each company maintains its own bank account into which it deposits its revenue and from which it pays bills"; and (24) "[t]he members of [Plaintiff] act independently and in the best interest of [Plaintiff]." (Id.)

Plaintiff further alleges that, based on the Commissioner's improper alter-ego designation, (1) on or about November 5, 2008, the Commissioner issued Plaintiff two Notices of a Federal Tax Lien stating, inter alia, that Plaintiff had been designated as the alter ego of American Group, (2) on or about January 5, 2009, the Commissioner issued three Notices of Levy to Lowes Home Centers, Inc., also stating, inter alia, that Plaintiff had been designated as the alter ego of American Group, (3) in response to the liens and levies, Plaintiff filed a request for CAP appeal with the Internal Revenue Service ("IRS"), pursuant to IRS Form # 9423, (4) a CAP appeal hearing was held and subsequent determination was issued by the Commissioner sustaining the issuance of the alter-ego liens and levies, and (5) the Commissioner has subsequently issued levies against Plaintiff, causing it to suffer irreparable harm for which there is no adequate remedy at law.

As relief for the Commissioner's wrongful designation of Plaintiff as the alter ego of American Group, Plaintiff requests that the Court issue a declaratory judgment pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, declaring that (1) Plaintiff is not the alter ego of American Group, and (2) the Commissioner "erred, ignored or erroneously applied New York [S]tate law" in its determination to the contrary. (Id.)

Before proceeding to a description of the parties' arguments on the Commissioner's motion, the Court pauses to make two observations regarding Plaintiff's Complaint. First, occasionally in his Complaint, Plaintiff refers to the wrongdoer as not the Commissioner but the IRS. (See generally Dkt. No. 1.) The Court does not even liberally construe Plaintiff's Complaint as intending to assert a claim against the IRS, for two reasons: (1) Plaintiff's Complaint does not list the IRS, but the Commissioner, as a party in the caption and "parties" section of the Complaint; and (2) such a claim against the IRS would apparently be barred.*fn1

Rather, the Court construes Plaintiff's Complaint as intending to assert a claim against the Commissioner.

Second, the Court construes Plaintiff's Complaint as intending to assert a claim against the Commissioner in only his official capacity, for two reasons: (1) Paragraph 6 of the Complaint expressly uses the words "in his official capacity" to describe Plaintiff's claim against the Commissioner; and (2) the Complaint appears to lack factual allegations supporting a claim against the Commissioner in his individual capacity. (See generally Dkt. No. 1.)

B. The Commissioner's Motion

Generally, in support of his motion to dismiss for lack of subject-matter jurisdiction, the Commissioner argues that, as the head of an agency of the United States, he is immune from suit under the Declaratory Judgment Act, 28 U.S.C. § 2201, because (1) that Act expressly prohibits any court from granting declaratory relief in cases with respect to "Federal taxes," and (2) this case expressly involves federal taxes. (See generally Dkt. No. 5, Attach. 2 [Commissioner's Memo. of Law].)

Generally, in response to the Commissioner's motion to dismiss, Plaintiff argues as follows: (1) this Court has subject-matter jurisdiction over this case pursuant to 28 U.S.C. ยง 1340, which provides federal courts with original jurisdiction over "any civil action arising under any Act of Congress providing for internal revenue"; and (2) the Declaratory Judgment Act's prohibition against issuing declarations in cases regarding "Federal taxes" does not apply under the circumstances, because (a) that prohibition applies only to cases challenging the merits of an IRS tax determination, not the procedural validity of an IRS tax determination, and (b) here, Plaintiff is merely challenging the procedural ...


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