District of Columbia Office of Tax and Revenue v. John R. Shuman and Sara G. Shuman , 82 A.3d 58 ( 2013 )

Notice: This opinion is subject to formal revision before publication in the
Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the
Court of any formal errors so that corrections may be made before the bound
volumes go to press.
DISTRICT OF COLUMBIA COURT OF APPEALS
No. 12-AA-466
DISTRICT OF COLUMBIA OFFICE OF TAX AND REVENUE, PETITIONER,
v.
JOHN R. SHUMAN and SARA G. SHUMAN, RESPONDENTS.
Petition for Review of a Final order of the
District of Columbia Office of Administrative Hearings
(OTR-00008-11)
(Submitted October 22, 2013 Decided December 19, 2013)
Irvin B. Nathan, Attorney General for the District of Columbia, Todd S. Kim,
Solicitor General, Donna M. Murasky, Deputy Solicitor General, Mary L. Wilson,
Senior Assistant Attorney General, were on the brief for petitioner.
John R. Shuman and Sara G. Shuman, pro se, filed a statement in lieu of
brief.
Before THOMPSON, Associate Judge, and WAGNER and SCHWELB, Senior
Judges.
SCHWELB, Senior Judge: In the 1984 film ―The Terminator‖ – a work of
fiction starring Arnold Schwarzenegger – artificially intelligent machines
attempted to exterminate what was then left of the human race. In the appeal now
before us, a man-made computer system did not go so far but, defying the will of
those who programmed it, it caused significant grief and distress to those who had
2
a right to rely on its accuracy. Unfortunately, the machine involved belonged to
the branch of the District of Columbia government responsible for calculating and
collecting citizens‘ taxes. In this case, we are charged with resolving a controversy
that had its inception in an erroneous data entry made almost a decade ago into the
computer system of the District of Columbia‘s Office of Tax & Revenue (OTR),
and OTR‘s errant computer program has played a key role in the litigation.
The taxpayers affected by this unfortunate data entry are respondents John
R. Shuman and Sara G. Shuman. It is now undisputed that the Shumans were
entitled to a refund of $790 from OTR with respect to their 2004 tax return, but this
amount was mistakenly entered into OTR‘s computer system as tax due from the
Shumans. This erroneous entry, and the prolonged inability of OTR (apparently
continuing to the present day) to correct it, have caused repeated and vexatious
problems for the taxpayers, cost the District and its agencies a great deal of money,
and raised troubling questions as to what, if any, authority the District‘s Office of
Administrative Hearings (OAH) may have to provide an effective remedy, and as
to whether the controversy was litigated in the appropriate forum.
In this case, in the order under review, an Administrative Law Judge (ALJ)
3
of the OAH granted extensive monetary and equitable relief, including the
equivalent of an injunction, the imposition of conditional monthly fines potentially
adding up to many tens of thousands of dollars, and the unconditional transfer of a
large amount of money from one District agency (OTR) to another (OAH). Such
remedies, to the extent that they are precedented at all, have heretofore been
associated with contempt proceedings before judicial rather than administrative
bodies. We conclude that the ALJ exceeded her authority in granting the relief that
she did, and we therefore reverse her decision and vacate the ALJ‘s order, without
prejudice to any proceedings the Shumans may choose to institute in the Superior
Court and any defenses that OTR may assert in that forum.
I. FACTUAL BACKGROUND
Because of the complexity of this controversy and the repeated failure of
OTR to correct its errors and to avoid future mistaken claims against the Shumans,
we recite the history of the case in some detail. The Shumans timely filed a joint
income tax return in the District of Columbia for the 2004 tax year, and they paid
the tax due in full. The following year, the Shumans filed an amended return and
requested a refund in the amount of $790, which OTR duly issued to them. Two
4
years later, however, on September 13, 2007, OTR sent the Shumans a ―Statement
of Account‖ advising them that they owed the District $790, together with interest
and penalties, for the 2004 tax year. Believing this claim to be unfounded, the
Shumans promptly contacted OTR and requested that the error be corrected. On
September 21, 2007 OTR issued another Statement of Account and effectively
confessed error, acknowledging that the Shumans had no outstanding tax liability
for 2004. The unfounded claim was thus withdrawn.
When the Shumans filed their return for the 2007 tax year, however, they
requested a refund for that year in the amount of $4,132. OTR issued a refund
check in their favor, but for only $3,342, which was $790 less than the amount
requested. Undoubtedly more astonished than pleased, the Shumans immediately
inquired about the reduction of their refund, and they were once again reassured
that they would receive the balance. Nevertheless, on March 13, 2008, OTR sent
the Shumans a ―Notice of Offset‖ advising them that OTR had reduced their refund
for the 2007 tax year by $790 in order to satisfy an alleged tax liability for 2004.
By this time, the Shumans may have been a trifle bewildered, for the effective
confession of error which they had received half a year earlier had apparently come
to naught. On August 25, 2008, seeking a prompt and inexpensive remedy, the
5
Shumans brought OAH into the case by filing a ―Taxpayer‘s Protest of a Proposed
Assessment‖ with that agency. The Shumans requested OAH to rule that OTR was
required to issue a $790 refund, which reflected OTR‘s error as to the 2004 tax
year and, consequently, the amount by which OTR had improperly reduced the
Shumans‘ refund for the 2007 tax year. A few days later, however, on September
4, 2008, OTR sent the Shumans another Notice of Offset, reiterating that their
refund for 2007 would be reduced by $790.
At this point, having noted the discrepancies, OTR apparently launched an
investigation and discovered that the incorrect offset notices had been sent to the
Shumans as a result of the erroneous information, described at the outset of this
opinion, which had been entered into OTR‘s computer system with respect to the
2004 tax year. Specifically, the $790 refund that the District owed to the Shumans
for 2004 had been mistakenly entered into the system as an amount owed by the
Shumans to the District. On October 2, 2008, the ALJ, who has handled this
matter on behalf of OAH throughout these proceedings, exercised jurisdiction over
the case without immediate objection by OTR, and she held a status conference. A
representative of OTR agreed at this conference that the Shumans were entitled to
receive a refund check for the amount in dispute. OTR did indeed send the
6
Shumans a check for $790 on October 21, 2008, as it had agreed to do, but OTR
seemingly nullified this action by issuing a new Notice of Offset on October 28,
2008, again claiming that the Shumans owed $790 in unpaid taxes for the 2004
year. In addition, OTR sent the Shumans a refund check for $1,799.76, but
simultaneously issued an offset notice for $19,151. According to OTR, both of
these items pertained to the 2004 tax year.
On January 15, 2009, the ALJ held another status conference to try to
resolve the issues raised by the most recent claims. In conformity with
an assurance provided at this status conference, OTR certified that the Shumans
would have no tax liability for tax years 2004 to 2007 if they returned the
erroneously issued $1,799.76 refund check. The ALJ issued a final order on
February 2, 2009, directing the Shumans to return this check, and she ordered that
the case be dismissed without prejudice when that had been accomplished.
This should surely have ended the matter, but it did not. On account of
persistent problems with its computer system, OTR continued to issue erroneous
forms and notices to the Shumans regarding the $790 refund. OTR issued an
Internal Revenue Service (―IRS‖) Form 1099-G for tax years 2004 and 2007, in
7
which it incorrectly alleged that the Shumans had received $23,891 and $7,292 in
refunds for those years. In response, on February 9, 2009, the Shumans moved to
reopen the case, asserting that they had not received refunds in the claimed
amounts. At this point, half a year after the Shumans had complained to OAH,
OTR argued for the first time that OAH lacked jurisdiction over ―information‖
returns such as the IRS Form 1099-G because these forms do not assess a tax, and
because OAH‘s statutory jurisdiction is limited to dealing with tax assessments.
This claim of lack of jurisdiction is one of OTR‘s principal contentions before this
court.
On February 26, 2009, OTR sent the Shumans still another Notice of Offset,
now asserting that the Shumans‘ refund for the 2004 tax year should be reduced by
$1,580, which of course is $790 doubled. The Shumans promptly filed an
amended motion to vacate the dismissal and to reopen the case. On March 16,
2009, the ALJ granted the motion to reopen, and she stayed the motion to vacate
dismissal pending a status conference. At that conference, Pamela Westray, then
operations manager for OTR‘s Customer Service Administration, explained that a
―glitch‖ in OTR‘s computer system had caused the computer to generate the
erroneous notices automatically. Ms. Westray believed that she could override the
8
automatic generation of the notices by ―suppressing‖ the Shumans‘ account for
2004 and by ―writing off‖ the incorrect outstanding balance. As we shall see,
however, it turned out that she was mistaken; the computer system, though
inanimate, would not be so easily diverted.
On April 13, 2009, following the status conference, the ALJ issued an
order directing OTR to ―suppress‖ the Shumans‘s accounts for the tax years 2004
to 2007, and to submit written proof of compliance with her order within 30 days.
She also warned that if OTR sent another erroneous notice claiming tax due for the
2004 tax year, despite its certification that the Shumans had no further obligations
for 2004, OTR would be subject to potential monetary sanctions for failure to
comply with a lawful order. See D.C. Code § 2-1831.09 (b)(8) (2001). The ALJ
directed that the case remain open for six months, so that OTR‘s compliance with
the order could be monitored. On December 29, 2009, the Shumans not having
received any tax bills or notices concerning 2004 for more than six months, the
ALJ again ordered that the case be closed. In her order, however, the ALJ
included the caveat that ―a[n]y further indication of OTR or its computers or
contractors sending another offset notice or a tax bill or taking any other action to
collect monies relating to [the Shumans‘] 2004 tax year account will subject
9
Respondent OTR to the possibility of a monetary sanction being imposed.‖ In
other words, the ALJ was now going well beyond determining whether the
Shumans‘ protests were correct, and essentially enjoining OTR from sending any
further incorrect notices or bills, with possible monetary sanctions looming in the
background.
II. ENFORCEMENT PROCEEDINGS
Enforcement issues first arose with a (comparatively) minor reporting
violation. OTR failed to submit written proof of compliance with the order by the
30-day deadline, and the ALJ ordered OTR to show cause why sanctions should
not be imposed. OTR responded that it had suppressed the Shuman‘ accounts
within the deadline as ordered, but acknowledged that it had failed to submit proof
of compliance to OAH. It does not appear that any specific sanctions were issued
as a result of this purely procedural failure on the part of OTR, although the ALJ
did mention it in her Final Order on Sanctions.
Meanwhile, on June 3, 2009, the Shumans received a letter from
MuniServices LLC, a company that had a contract with OTR under which it was to
identify taxpayers who were believed not to have paid all of the taxes owed by
10
them to the District of Columbia. According to MuniServices, the Shumans had
potential additional tax obligations as a result of their allegedly having done certain
kinds of business in the District. The Shumans responded that during the relevant
time period, they had not conducted in the District any of the types of business
described in the letter. At the hearing on the order to show cause, OTR
acknowledged that its suppression of the Shumans‘s accounts had not been
communicated to MuniServices, which collected its information from a separate
data base. In addition, after the case had been closed, the Shumans received
another IRS Form 1099-G in which OTR erroneously reported that they had
received a refund of $1,580 in 2009 for the 2004 tax year. OTR also issued new
Notices of Offset on March 14, 15, and 16, 2011, all of which related to the
computer glitch surrounding the Shumans‘ tax account for the 2004 tax year. At
this point, three and one half years after OTR had first confessed error, the
Shumans again moved to reopen the case and requested that the ALJ enforce her
final order and impose sanctions.
On May 11, 2011, the ALJ held a hearing to determine what, if any,
sanctions would be appropriate. OTR‘s witnesses testified that although OTR had
tried on numerous occasions to correct the Shumans‘ accounts, the computer
11
system would not allow the attempted corrections to be preserved. OTR had
written off the $790 as uncollectable, but the computer system had failed to
recognize the write-off once it appeared that money was available to pay off the
supposed bad debt. OTR also presented testimony to the effect that the problems
with the ten-year-old computer program could not be resolved unless it was
replaced by an entirely new system. OTR, in other words, protested that it was
powerless to control the actions of its own computers, and that there was nothing
that OTR could do about it. As Mr. Shuman testified, however, ―[i]t is a sad day
when computers rule man. There must be human accountability for actions by
governments. It is too simple to just blame a machine or program for one's ills.‖
Following the hearing, the Shumans notified the ALJ that OTR had sent them a
refund check for $790, dated May 16, 2011, and a Notice of Offset in the amount
of $1,380, dated May 23, 2011
On December 20, 2011, the ALJ issued the Final Order on Sanctions which
is the subject of this Petition for Review. The ALJ found that ―OTR willfully
failed to comply with this court‘s numerous orders to stop sending erroneous offset
notices and refund checks to [the Shumans] for the past two years.‖ She concluded
that ―OTR‘s conduct has created prejudice to the judicial system‖ by wasting
12
OAH‘s resources and by delaying the litigation of other cases.1 With respect to
OTR‘s defense that it was not responsible because the computer program was at
fault, the ALJ would have none of it. She wrote:
It is inconceivable that the District of Columbia Office of
Tax and Revenue is willing to continue to blindly rely on
a computer program that it knows produces erroneous
documents and then sends the erroneous documents to
taxpayers, apparently without either the knowledge or
intervention of any OTR staff. It is further disconcerting
that OTR made next to no attempt to remedy the problem
while aware that taxpayers across the District will likely
continue to receive incorrect notices of offset and refund
checks as a result of its continuing errors. Moreover, the
erroneous refund checks and Notices of Offset can create
serious IRS tax implications for the affected parties.
Turning to the remedy to be imposed, the ALJ analogized OTR‘s actions to
the type of conduct that warrants sanctions for civil contempt, criminal contempt,
discovery violations, and unnecessary consumption of judicial resources. She
ordered OTR to pay $80,825.26, with interest, to OAH. This award, according to
the ALJ, represented ―the amount of money OTR erroneously claimed in Notices
of Offset or distributed to [the Shumans] in erroneous checks, all regarding their
1
The ALJ apparently assumed that the proceeding before OAH is part of
the ―judicial system.‖
13
2004 tax account year.‖ In addition, the ALJ imposed fines of $250 per day for
the first month after December 31, 2011, if OTR failed to ―comply with [her]
orders and correct the malfunctions in its computer system or replace[] that system
with one that functions‖; $350 per day for the second month; $450 per day for the
third month; and an additional $100 per day each month thereafter. The daily fines
were thus to begin less than two weeks after the entry of the order.
On December 30, 2011, OTR moved for reconsideration of the final order
on sanctions, for a stay of the final order, and for dismissal of the proceedings for
lack of jurisdiction. OTR argued that OAH lacked jurisdiction over claims for
refunds, and that even assuming that it did have jurisdiction, the ALJ was without
authority to order OTR to repair or replace its computer system, or to impose
monetary sanctions for failure to comply with the ALJ‘s orders. In the alternative,
OTR asserted that it had in fact complied with the orders. OTR also submitted an
affidavit from James Spaulding, the Associate Deputy Chief Financial Officer of
the District of Columbia Office of Budget and Planning, in which he represented
that funds for replacing OTR‘s computer system could be provided only from a
capital budget extending through fiscal year 2016, so that any attempt to
implement the ALJ‘s order would take several years to complete.
14
On March 15, 2012, in detailed separate orders, the ALJ denied all three
motions. She construed the Notices of Offset that OTR had sent to the Shumans as
Notices of Proposed Deficiency, equivalent in substance to proposed assessments,
and she therefore concluded that OAH had jurisdiction over the matter. The ALJ
also held that she had acted within OAH‘s statutory authority when she imposed
monetary sanctions for OTR‘s failure to comply with her order to discontinue
sending erroneous notices and tax bills to the Shumans. She concluded that,
contrary to OTR‘s assertion, the remedies she had granted did not constitute
equitable relief. The ALJ also reasoned that because her order was necessary to
regulate the proceedings of the case, see D.C. Code § 2-1831.09 (b)(7), ―this
administrative court had authority to order OTR to fix its computer system,
because it fell within the scope of ‗regulating the proceedings.‘‖ Id. The ALJ
further commented that OTR could have complied with the order requiring it to
discontinue sending incorrect notices to the Shumans by ―designat[ing] an
employee to screen offset notices and remove any offset notice or other tax bill
relating to [the Shumans‘] 2004 tax return addressed to [the Shumans] prior to
mailing.‖ Finally, the ALJ concluded that she was authorized to impose monetary
sanctions against non-compliant parties, including other District of Columbia
15
agencies, pursuant to § 2-1831.09 (b)(8), which (with exceptions not here relevant)
permits administrative law judges, to ―[i]mpose monetary sanctions for failure to
comply with a lawful order.‖
Following the denial of its motions, OTR asked this court to summarily
reverse the ALJ‘ s order or, in the alternative, to stay the order pending its review
by this court. The Shumans did not file a response, and they have not played an
active part in the proceedings before this court. On May 25, 2012, this court
denied the motion for summary reversal but granted the requested stay pending
further order of this court. The stay remains in effect.
III. ANALYSIS
In its brief, OTR contends (1) that OAH lacked jurisdiction over the case;
(2) that, assuming jurisdiction, OAH lacked the remedial authority which the ALJ
purported to exercise; and (3) that, on the merits, the ALJ‘s order was arbitrary and
capricious. We largely reject OTR‘s first contention, agree with the second, and
do not reach the third.
16
A. JURISDICTION
Whether OAH had jurisdiction over this proceeding depends entirely on
whether or not its exercise of jurisdiction was authorized by statute or regulation.
Ramos v. District of Columbia Dep’t of Consumer & Regulatory Affairs, 601 A.2d
1069, 1073 (D.C. 1992). ―An administrative agency is a creature of statute and
may not act in excess of its statutory authority.‖ See, e.g., District Intown Props.,
Ltd. v. District of Columbia Dep’t of Consumer & Regulatory Affairs, 680 A. 2d
1373, 1379 (D.C. 1996); Spring Valley Wesley Heights Citizens Ass’n v. District of
Columbia Bd. of Zoning Adjustment, 644 A.2d 434, 436–37 (D.C.1994); Davidson
v. District of Columbia Bd. of Medicine, 562 A.2d 109, 112 (D.C.1989). ―The
purported exercise of jurisdiction beyond that conferred upon the agency by the
legislature is ultra vires and a nullity.‖ District Intown, 680 A.2d at 1379 (citing
Auger v. District of Columbia Bd. of Appeals & Review, 477 A.2d 196, 209 (D.C.
1984)).
The authority of OAH over tax protests is governed by the Tax Clarity Act
of 2000, D.C. Code §§ 47-1330 et seq., and by the Office of Administrative
Hearings Establishment Act of 2001, D.C. Code §§ 2-1831.01 et seq. The Tax
Clarity Act provides, in pertinent part:
17
Unless otherwise provided in this title, before a final
assessment of a deficiency, interest, or penalties against a
person, the Mayor shall send the person a proposed
assessment. No later than 30 days after the proposed
assessment is sent, the person may file a protest with the
Office of Administrative Hearings, and shall serve a copy
on the Mayor.
§ 47-4312 (a). ―If a protest is filed in a timely manner . . . the Mayor may not issue
a final assessment of the deficiency, interest, or penalties, and the Office of
Administrative Hearings shall decide, after providing an opportunity for a hearing,
whether the deficiency, interest, or penalties are proper.‖ § 47-4312 (c). With
exceptions not pertinent here, ―a final order of [OAH] in any matter in which a
protest has been filed shall have the same effect as a final assessment of a
deficiency, interest, or penalties, and the Mayor may undertake any lawful
collection efforts for any amount that such final order determines is due from any
person.‖ § 47-4312 (e).
A taxpayer may also appeal any tax assessment to the Superior Court as an
alternative to filing a protest with OAH. § 47-4312 (d). The Tax Clarity Act
grants the Superior Court jurisdiction over claims brought by ―[a]ny person
18
aggrieved by any assessment of a deficiency in tax determined and assessed by the
Mayor,‖ § 47-1815.01, provided that ―such person shall first pay such tax together
with penalties and interest due thereon to the D.C. Treasurer.‖
The OAH Establishment Act confers on OAH jurisdiction ―over all
adjudicated cases of the Office of Tax & Revenue arising from tax protests filed
pursuant to § 47-4312.‖ § 2-1831.03 (b)(4). The Establishment Act requires
taxpayers to choose either OAH or the Superior Court as the exclusive forum for
tax protests:
A person who has filed a protest of a proposed
assessment under § 47-4312 and requested a hearing
with [OAH] shall be deemed to have elected
adjudication by the Office as the exclusive means of
adjudication of all challenges to the proposed
assessment, and to have waived any right to
adjudication of a challenge to the proposed
assessment in any other forum.
§ 2-1831.03 (j).
OTR argues that OAH has jurisdiction only over protests of a ―proposed
assessment‖ of a ―deficiency, interest, or penalties against a person,‖ pursuant
19
to § 47-4312 (a). OTR claims that the Shumans were requesting a tax refund
rather than protesting a proposed assessment, that refunds can be ordered only by
the Superior Court, and that OAH therefore lacked jurisdiction. According to
OTR, ―the Shumans originally challenged the March 13, 2008 Notice of Offset and
asked to secure the balance of the refund they were due on their 2007 taxes,‖ and
their request for a refund and the subsequent offset notices ―did not involve the
proposed assessment of a deficiency, interest, or penalty.‖
In our view, this jurisdictional argument, first raised six months after the
case came before OAH, blinks reality and exalts form over substance to an
altogether unacceptable degree. The dispute engineered by OTR and its defective
computer program more than three years after the fact had its origin in a purported
underpayment of the Shumans‘ 2004 taxes, not of those to be paid in 2007.
Although the original notice to the Shumans was not called an ―assessment,‖ it was
in fact the first communication from OTR informing the Shumans that they
allegedly owed money on their 2004 taxes. Indeed, it was ―the mailing to the
taxpayer of a statement of taxes due,‖ and thus at least arguably a notice of
assessment for that reason alone. See § 47-3303. Had OTR made the claim that
the Shumans owed $790 on their 2004 return in timely fashion, there can be no
20
doubt that the Shumans would have had the right either to challenge the assessment
before the OAH or to pay the disputed amount and sue for a refund in the Superior
Court. The legislature surely could not have intended that OTR‘s unreasonable
tardiness in asserting this claim with respect to the 2004 tax year (after having
earlier acknowledged that the Shumans owed nothing for 2004) would deprive
the taxpayers, who were not at fault in any way, of the most economical option
available to them, i.e. to bring the matter to the attention of the agency without the
expense and effort associated with taking it to court. To accept OTR‘s argument
would be to permit the sole party which was at fault to gain an advantage from its
own wrong, and to penalize the innocent parties, a result that courts, including
ours, consistently endeavor to avoid. See Glus v. Brooklyn E. Dist. Terminal, 359
U.S. 231, 232 (1959); J.J. v. B.A., 68 A.3d 721, 728 (D.C. 2003).
The ALJ analyzed this issue effectively, in part, in her order denying OTR‘s
motion for reconsideration:
Although OTR sent Petitioners a Notice of Offset, in
essence the form was a Notice of Proposed Deficiency
and not a Notice of Offset, as it related to an alleged
liability for the 2004 tax year, and not an offset of a 2007
obligation against a claimed refund for that year. OTR
never sent Petitioners a Notice of Proposed Deficiency
21
for the $790.00, which is the proper procedure to inform
a taxpayer of a tax liability. Therefore, because the
Notice of Offset was the first notice Petitioners received
regarding the 2004 tax liability, I have construed it as a
Notice of Proposed Tax Deficiency.2
We agree with the ALJ. OTR‘s argument runs afoul of the principle that ―courts
deal with the substance, rather than the form, of transactions.‖ EDM & Assocs. v.
Gem Cellular, 597 A.2d 384, 388 (D.C.1991) (citations omitted). They do
not ―subordinate reality to legal form,‖ United States v. Reading Co., 253 U.S. 26,
62 (1920), nor do they ―permit themselves to be blinded or deceived by mere forms
of law,‖ contrary to the justice of the case. Chicago M & St. Paul R.R.Co., 247
U.S. 490, 501 (1918). ―Labels are not controlling,‖ and we must be guided by ―the
practical consequences of the existing situation.‖ EDM, 597 A.2d at 388. These
principles, in our view, compel us to reject OTR‘s jurisdictional argument.
2
The ALJ continued as follows: ―All subsequent Notices of Offset
Petitioners received from OTR arise out of the initial erroneous Notice of Proposed
Deficiency, and thus do not end this tribunal‘s jurisdiction, which existed initially,
and are treated as Notices of Proposed Tax deficiencies, however labeled.‖ This
conclusion is far more subject to challenge, for it is arguable that OAH‘s
jurisdiction ceased when OTR withdrew its claim that the Shumans owed an
additional amount for the 2004 tax year. See page 28, infra. Be that as it may,
however, we entertain no doubt that OAH had jurisdiction over the Shumans‘
initial claim.
22
B. OAH’S REMEDIAL AUTHORITY
(1) General considerations.
We turn now to the question whether the ALJ was authorized to impose the
remedies that she devised. Before addressing the statutes on which this issue turns,
we make two preliminary observations.
First, our review of the order in question is not deferential. As we explained
in Washington v. District of Columbia Dep’t of Public Works, 954 A.2d 945, 948
(D.C. 2008), the proper construction of a statute raises a question of law, and we
review the order de novo. In re Doe, 855 A.2d 1100, 1102 (D.C.2004); Jackson v.
United States, 819 A.2d 963, 965 (D.C.2003) (citation omitted). ―[I]t is
emphatically the province and duty of the judicial department to say what the law
is . . . .‖ Harris v. District of Columbia Office of Worker’s Comp., 660 A.2d 404,
407 (D.C.1995) (quoting Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed.
60 (1803)); see also United Parcel Serv. v. District of Columbia Dep’t Emp’t
Servs., 834 A.2d 868, 871 (D.C. 2003). Although we accord appropriate weight to
the interpretation of a statute by the agency which is charged with its enforcement,
23
and which therefore ordinarily has subject matter expertise with respect to the
matter before the court, see Udall v. Tallman, 380 U.S. 1, 16, (1965); United
Parcel Serv., 834 A.2d at 871, the OAH is vested with the responsibility for
deciding administrative appeals involving a substantial number of different
agencies, and it cannot fairly be expected have the degree of expertise possessed
by more specialized administrative bodies. Washington, 954 A.2d at 948.
Second, the kind of relief ordered here, including a directive to OTR to
repair or replace the computer system, to pay a substantial and continuously
increasing daily fine if OTR failed to do either (in an amount that could swiftly add
up to many tens of thousands of dollars if, as OTR claims, the new system could
not be installed for several years and the fine continued to accumulate), and to pay
more than $80,000 to another District of Columbia agency (specifically, to the
agency of which the ALJ is a part) appears to be totally unprecedented. The ALJ,
who obviously put a great deal of time and effort into this case, was unable, after
conducting much research on the issue, to cite a single decision in which an
administrative agency imposed the kinds of sanctions ordered here, and we are not
aware of any comparable precedent. If we were to affirm the ALJ‘s decision, that
would most assuredly be a ―first‖ and might well, in our view, make administrative
24
law history.
We begin by stating the underlying principles that govern the issue before
us. As we have noted in Part II A of this opinion, an administrative agency may
not act in excess of its statutory authority. ―The responsibility of determining
limits of statutory grants of authority . . . is a judicial function entrusted to the
courts by Congress by the statute establishing courts and marking their
jurisdiction.‖ Stark v. Wickard, 321 U.S. 285, 310 (1944). ―Absent express
statutory or regulatory authority, a regulatory agency may not impose remedial
measures.‖ Davidson v. District of Columbia Bd. of Med., 562 A.2d 109, 112
(D.C. 1989) (citing Kuflom v. District of Columbia Bureau of Motor Vehicle
Servs., 543 A.2d 340, 346 (D.C. 1988)). In Ramos, 601 A.2d at 1073, in holding
that an administrative agency does not have inherent authority to award punitive
damages or counsel fees, we explained that
[i]n contrast with judicial tribunals . . . administrative law
tribunals — created by the legislature to serve dispute
resolution and rulemaking-by-order functions within
agencies of the executive branch — by definition and
design do not have the inherent ―equitable authority‖ that
courts in the judicial branch have derived from common
law traditions and powers. Administrative law judges
only possess narrowly defined statutory and regulatory
25
powers; they do not have the traditional equity power of
courts to formulate remedies.
Further, an ALJ is not authorized to engage in a ―balancing of interests‖ which
reflect his or her sense of justice but which are not a part of the legislation at issue;
rather, he or she must decide the case in conformity with the provisions of the
statute in question, ―and nothing more.‖ District of Columbia Pres. League v.
DCRA, 646 A.2d 984, 990 (D.C. 1994) (emphasis in original).
(2) Injunctive relief and conditional coercive fines.
In this case, the ALJ relied on three statutory provisions in support of the
order that OTR repair or replace the computer program and pay a daily fine if it
failed to do so: (1) § 2-1831.09 (b)(8), which authorizes an Administrative Law
Judge, in any case in which he or she presides, to impose monetary sanctions for
failure to comply with a lawful order; (2) § 47-4312 (c), which provides that OAH
has the responsibility to decide, after providing an opportunity for a hearing,
whether claimed deficiencies, or interest or penalties, are proper; and (3) § 2-
1831.09 (b)(7), which empowers ALJs to ―regulat[e] the parties and proceedings
before them.‖ Turning first to the last of these provisions, that authority is limited
26
to ―what is commonly required to maintain control over aspects of the hearing
process such as pleadings, discovery, testimony, and attorney behavior.‖
Ramos, 601 A.2d at 1073-74. Examples of permissible exercise of such regulatory
authority are found in Mullin v. District of Columbia Rental Hous. Comm’n, 844
A.2d 1138, 1141 (D.C. 2004), holding that the Rental Housing Commission had
the power to dismiss an appeal for the plaintiff's failure to comply with a protective
order, and Brown v. District of Columbia Bd. of Zoning Adjustment, 413 A.2d
1276, 1279-84 (D.C. 1980), in which we ruled that the BZA could properly
entertain a motion to disqualify an attorney who had allegedly violated a
disciplinary rule. We cannot agree with the ALJ‘s suggestion that the relief
granted in this case, including coercive conditional daily fines, ―regulates the
parties and proceedings‖ within the meaning of § 2-1831.09 (b)(7).
Section 47-4312 (c), which directs OAH to determine whether a taxpayer‘s
protest of an assessment has merit, likewise provides scant support for the ALJ‘s
ruling. Although the ALJ may – indeed, she must – make this limited
determination, the statute does not state that the ALJ is also authorized to ensure
more accurate future assessments, or to remedy any possible future recurrences.
Indeed, assuming dubitante that OAH‘s jurisdiction over the 2004 return continued
27
after the agency initially confessed error, see note 2, supra, there is nothing in this
provision that could reasonably be construed as authorizing what was in effect
injunctive relief against OTR or the contempt-type relief that followed. While the
statute provides that OAH‘s decision shall operate as a final assessment upon
which OTR may undertake tax collection efforts, § 47-4312 (e), there is no
provision permitting OAH to enjoin OTR to ensure future compliance. In addition,
nothing in the OAH Establishment Act expands the agency's authority to permit it
to impose remedial measures of the kind at issue here. See § 2-1831.09 (b). The
case must therefore turn on whether or not the de facto injunctions, and the
conditional fines that followed, can be justified as remedies for failure by OTR to
comply with what OAH claims to have been lawful orders. We conclude that they
cannot.
The ALJ apparently recognized that she was not authorized to grant
equitable relief, but she insisted that she had not done so. In her order denying
reconsideration, she wrote that she had ordered a monthly sanction for every month
that OTR did not comply with a lawful order, and that ―because OTR testified [sic]
that compliance can only be secured by fixing its computer system, it logically
follows OTR must fix its computer system in order to comply with the lawful
28
order.‖ Therefore, according to the ALJ, ―the requirement for OTR to fix its
computer system does not exceed this court‘s authority by granting equitable relief.
Instead, the requirement is necessary to regulate the proceedings of this case.‖ Id.
But viewing the substance rather than the form of what was done, EDM, 597 A.2d
at 385, we must reject the notion that an order directing OTR to repair or replace
the computer system, followed by sanctions which, as we shall see, were consistent
with a judgment of civil contempt, did not constitute equitable relief. Reality, not
nomenclature, must control. We hold that for all practical purposes, the ALJ
issued injunctions, both by ordering OTR not to send the Shumans, in the future,
any further claims of underpayment of their 2004 tax and by effectively ordering
OTR to repair or replace its computer system.
If, as we have held, the ALJ was without authority to enjoin OTR, it follows
a fortiori, that it was impermissible for her to impose financial penalties in order to
compel compliance with the injunctions. Because, by the terms of the judge‘s
order imposing sanctions, OTR would be subject to coercive monthly fines until it
complied with the injunction, that order was, in all but name, a judgment for civil
contempt, from which OTR could purge itself only by compliance. See, e.g.,
McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949); Langley v.
29
Kornegay, 620 A. 2d 865, 866-67 (D.C. 1993). Indeed, in her Final Order on
Sanctions, the ALJ discussed civil contempt precedents in considerable detail, and
she concluded that ―the imposition of an ongoing monetary sanction on OTR is the
only effective means of forcing compliance with this court‘s order,‖ and that it
was ―important to motivate OTR to comply with future orders as well as deterring
its past continuing errors.‖
The ALJ failed to acknowledge, however, that only judicial courts, and not
administrative agencies, have the authority to issue contempt sanctions. ―[T]he
power to cite for contempt has never been put directly into the hands of a federal
agency; rather the assistance of a federal court is obtained and its contempt power
enlisted in support of the agency by ‗enforcement‘ of the subpoena or order.‖ Use
of Contempt Power to Enforce Subpoenas and Orders of Administrative Agencies,
71 Harv. L. Rev. 1541, 1541-42 (1958). As the Supreme Court explained more
than a century ago in Interstate Commerce Comm’n v. Brimson,154 U.S. 447, 485
(1894) (abrogated on other grounds, Bloom v. Illinois, 391 U.S.194, 198-200
(1968)), an agency may not, ―under our system of government, and consistently
with due process of law, be invested with authority to compel obedience to its
orders by a judgment of fine or imprisonment.‖ With exceptions not here relevant,
30
―the power to impose fine or imprisonment in order to compel the performance of
a legal duty imposed by the United States can only be exerted, under the law of the
land, by a competent judicial tribunal having jurisdiction in the premises.‖
Brimson, 154 U.S. at 485 (citations omitted).
Relying on Brimson, the federal appellate courts have consistently
recognized this ―well-established principle.‖ See Atlantic-Richfield Co. (―ARCO‖)
v. United States Dep’t of Energy, 769 F.2d 771, 793 (D.C. Cir. 1984) N.L.R.B. v.
Interbake Foods, LLC, 637 F.3d 492, 497 (4th Cir. 2011); United States v.
Tennessee Air Pollution Control Bd., 185 F.3d 529, 532 n.3 (6th Cir. 1999); Matter
of Hipp, Inc., 895 F.2d 1503, 1515 (5th Cir. 1990); N.L.R.B. v. Int’l Medication
Sys., Ltd., 640 F.2d 1110, 1115-16 (9th Cir. 1981); In re Grand Jury Proceedings,
486 F.2d 85, 90 (3d Cir. 1973); Shasta Minerals & Chemical Co. v. Securities and
Exchange Comm’n, 328 F.2d 285, 286 (10th Cir. 1964); Sullivan v. Union
Stockyards Co. of Omaha, 26 F.2d 60, 61 (8th Cir. 1928). We discern no reason to
do otherwise, and we think it inconceivable that by enacting § 2-1831.09 (b), the
legislature intended to abrogate such a well-established and constitutionally based
principle, at least arguably in contravention of the constitutional separation of
powers.
31
Here, OAH sought to impose increasing coercive fines for every month that
OTR did not repair or replace its computer system. These sanctions sound in civil
contempt, they were based on the ALJ‘s analysis of the law of civil contempt, and
they go far beyond any relief that an administrative agency, as opposed to a court,
is authorized to issue. The appropriate forum for a suit to compel compliance with
an order of OAH is the Superior Court. Indeed, the OAH Establishment Act, § 2-
1831.09 (e) provides that ―[i]n addition to any other sanctions that an [ALJ] may
lawfully impose for the violation of any order . . . , an [ALJ], or a party in interest
in an adjudicated case, may apply to any judge of the Superior Court of the District
of Columbia for an order issued on an expedited basis to show cause why a person
should not be held in civil contempt for refusal to comply with an order . . . issued
by an [ALJ].‖
If the Shumans wished to pursue this kind of relief, then a ―competent
judicial tribunal,‖ ARCO, 769 F. 2d at 993, was and (subject to any possible
defenses) remains, readily available.
32
(3) The $80,835.46 award
In addition to the civil contempt-style conditional coercive fines, the ALJ
ordered that OTR be ―sanctioned in the amount of $80,825.26, payable to this
administrative court, with interest accruing as allowed by law.‖ She imposed this
sanction because
OTR‘s conduct has created prejudice to the judicial
system. This court wasted judicial resources3 by
conducting multiple status conferences and hearings on
Orders to Show Cause after the original ―Final‖ Order.
Scheduling and conducting these hearings on this matter,
solely because OTR failed to comply, delayed innocent
litigants in other matters from litigating their claims.
Long after February 2009, when proceedings in this case
should have ended, this court has expended significant
resources in the continued adjudication of this case
because OTR failed to comply with court orders. In
addition, [the Shumans] expended time and resources not
only in litigating this case, but also in receiving and
deciphering their Federal and state tax consequences due
to OTR‘s negligence.
The ALJ found that the amount of this sanction ―represents the amount of money
OTR erroneously claimed in Notices of Offset or distributed to [the Shumans] in
3
Again, the ALJ appeared to equate administrative proceedings with the
judicial process.
33
erroneous checks, all regarding the 2004 tax year.‖ How, if at all, this correlates to
wasted OAH resources is unclear.
The only precedents cited by the ALJ for this very substantial sanction are
three decisions by United States District Courts in which the amounts awarded
were minimal in comparison to the more than $80,000 at issue here. See Olga’s
Kitchen of Hayward, Inc. v. Papo, 108 F.R.D. 695, 711 (E.D. Mich. 1985), aff’d in
part & rev’d in part on other grounds, 1987 U.S. App. LEXIS 2205 (6th Cir.1987)
($1000 to be paid to Clerk of the Court for the unnecessary consumption of judicial
resources etc.); Itel Containers Int’l. Corp. v. Puerto Rico Marine Mgmt., Inc., 108
F.R.D. 96, 106-07 (D.N.J. 1985) (sanction of $5000 to be paid to the government
for the abuse of the judicial process as it directly impacted upon the court; the court
stated, however, that if, on appeal, an award of $5000 was deemed excessive, ―it
would appear that no less than $500 would be appropriate); Nat’l Ass’n of
Radiation Survivors v. Turnage, 115 F.R.D. 543, 549 (N.D. Cal. 1987) (defendant
was originally ordered to pay an additional sum of $15,000 ―for the unnecessary
consumption of the court‘s time‖; this sum was initially to ―compensate unpaid law
students who assist in the work of the courts of this district,‖ but the court
subsequently ordered that the payment be made instead to the clerk of the court, so
34
that the funds could be paid into the Treasury of the United States). Based on these
decisions, the ALJ evidently assumed that if United States District Courts had the
authority to order payments such as those described above, an ALJ was authorized
not only to do so but, in an appropriate case, to make the sanction many times
greater. The ALJ has not addressed at all the possibility that courts are authorized
to take certain remedial actions that administrative agencies may not, and that the
proper disposition of this petition for review may well turn on the difference.
This case also differs from those relied upon by the ALJ in that the sanction
in question would require the transfer of more than $80,000 from one District of
Columbia agency to a second, by order of the proposed recipient agency. OTR has
not focused upon the propriety of OAH‘s decreeing a payment to itself, and the
ALJ apparently did not believe that a reasonable person might regard her presiding
over the case, and imposing a sanction substantially adding to the funds available
to her own agency, as raising a question as to whether the appearance of
impartiality had been maintained. See, generally, Scott v. United States, 559 A.2d
745, 749 (D.C. 1989) (en banc). This problem is further complicated by the fact
that in this court the Shumans‘ participation in the case has been minimal, so that
most of the disputation has been between the ALJ and counsel for OTR. The
35
question regarding any possible appearance of partiality has not been adequately
briefed, however, and although we alert the parties to its existence, we do not base
our decision upon that ground.
Because the question now under discussion, unlike those involving
injunctive relief and coercive conditional sanctions, is not essentially equitable in
nature, and because § 2-1831.09 (b)(8) authorizes the imposition of monetary
sanctions for violation of a lawful order, we are not prepared to rule that the
Brimson line of authority will bar an award for unnecessary consumption of
judicial resources in every case. The decisive question, however, is whether the
underlying orders, enjoining OTR from sending future incorrect notices, were
―lawful.‖ Although it may not appear unreasonable for an agency charged with
determining whether a proposed assessment was proper to have the authority,
when incorrect notices are thereafter issued repeatedly, to order the cessation of
such conduct, there is nothing in § 47-4312 (c) permitting the OAH to enjoin future
actions on the part of OTR. The taxpayers are not without a remedy in such a
situation, for the Superior Court can assuredly issue equitable relief in an
appropriate case. Accordingly, we are constrained to hold that the unconditional
award of $80,825.06 cannot be sustained as a permissible monetary sanction for
36
violation of lawful orders.
We caution, as we did at the outset of this opinion, that our reversal of the
ALJ‘s order is not intended to suggest that OTR‘s handling of this matter was
justifiable, or that responsibility for what occurred can be excused as the fault of
the computer program but not of OTR. The problem in this case was not
necessarily any substantive weakness, but rather the fact that critical issues were
being argued in the wrong forum. Although they may be frustrating to lay persons,
such considerations matter.
IV. CONCLUSION
For the foregoing reasons, the decision of the OAH is reversed and the
Shumans‘ action is dismissed, without prejudice to further proceedings by the
Shumans in the Superior Court or to any defenses that may be presented in that
court. Further, in the interests of justice, and although OTR has technically
prevailed in its Petition for Review, the District of Columbia shall not recover from
the Shumans the costs of these proceedings or any portion thereof.