Coon v. Wood , 160 F. Supp. 3d 246 ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JOHN COON,
Plaintiff,
Civil Action No. 13-1400 (BAH)
v.
Judge Beryl A. Howell
EDWARD WOOD, et al.,
Defendants.
MEMORANDUM OPINION
The plaintiff, John Coon, proceeding pro se, brought a variety of state law claims arising
from a 2010 real estate transaction for which the defendants acted as the plaintiff’s real estate
agents. On September 18, 2014, this Court granted the defendants’ motion to dismiss all but one
of these claims, pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim
for which relief may be granted. Coon v. Wood, 68 F. Supp. 3d 77, 79 (D.D.C. 2014). With
discovery related to the plaintiff’s remaining claim now complete, pending before the Court are
the parties’ cross-motions for summary judgment on the plaintiff’s claim that the defendants
negligently misrepresented the potential tax consequences of the 2010 transaction. ECF Nos. 21,
24. For the reasons set forth below, because the plaintiff fails to demonstrate that he has
standing to pursue his remaining claim, the Court lacks jurisdiction over this matter, which must
be dismissed, and the parties’ cross-motions for summary judgment are therefore denied as moot.
I. BACKGROUND
The factual allegations underlying this dispute have been generally summarized in this
Court’s prior decision dismissing three of the plaintiff’s claims against the defendants. See
Coon, 68 F. Supp. 3d at 80–81. The facts pertinent to resolving the instant motions are briefly
summarized below.
1
In 2010, the plaintiff became interested in selling property in the District of Columbia
(“the D.C. Property”), with the intention of using the proceeds from this sale to purchase a new
investment property consisting of farm land near Charles Town, West Virginia. Defs.’ Statement
of Material Facts (“Defs.’ SMF”) ¶ 6, ECF No. 21-2. According to the plaintiff, after speaking
with a tax professional regarding the potential tax ramifications of the proposed transaction, he
sought the representation of Defendant Edward Wood, an “associate broker” at Defendant City
Houses D.C., and inquired whether the sale “could be accomplished in a way to avoid any capital
gains on the D.C. Property.” Id. ¶¶ 7–10; Compl. ¶¶ 1, 11. In response, the plaintiff alleges that
Wood incorrectly advised him that, because the purchase of the D.C. Property was itself
structured to avoid federal capital gains taxes, the sale of that property in 2010 could not also be
structured in a similar manner. Defs.’ SMF ¶ 11. Thereafter, the plaintiff proceeded with the
sale of the D.C. Property without structuring the transaction to avoid incurring a capital gains tax
liability. Id. ¶ 16.
As a result, the plaintiff alleges that he currently owes in excess of $75,000 in federal
capital gains taxes as a result of the sale. Id. ¶ 17. On the advice of his tax preparer, however,
the plaintiff did not claim any income associated with the sale on his 2010 federal tax return.
Pl.’s Opp’n Defs.’ Mot. Summ. J. (“Pl.’s Opp’n”) ¶ 5, ECF No. 27. Instead, with these taxes
unpaid, the plaintiff filed the instant action on September 19, 2013, seeking to recover damages
and attorneys’ fees on claims of breach of contract, negligent misrepresentation, breach of
fiduciary duty, and violations of D.C. Code §42-1701, et seq., relating to the sale of the D.C.
Property. Coon, 68 F. Supp. 3d at 81. The plaintiff claims in his opposition to the defendants’
instant motion for summary judgment that he intends to amend his 2010 return at the conclusion
of this action to include retroactively the capital gains associated with this sale. Pl.’s Opp’n ¶ 5.
2
Following the resolution of the defendants’ motion to dismiss, which left pending only
the plaintiff’s negligent misrepresentation claim, the parties proceeded to discovery. See Minute
Order, dated Oct. 2, 2014 (issuing a schedule to govern discovery and the filing of dispositive
motions). During the course of discovery, the parties disputed certain issues related to the
production of the plaintiff’s 2010 federal tax return, which the Court resolved during a telephone
conference, see Minute Entry, dated April 1, 2015, by ordering the plaintiff to file regular reports
to the Court regarding his efforts to produce this document to the defendants, Minute Order,
dated April 1, 2015. Soon after the plaintiff’s production of his 2010 federal tax return, see Pl.’s
Status Update of IRS Transcript, ECF No. 20, the defendants moved for summary judgment,
Defs.’ Mot. Summ. J. (“Defs.’ Mot.”), ECF No. 21. The plaintiff subsequently filed a cross-
motion also seeking summary judgment. Pl.’s Mot. Summ. J. (“Pl.’s Mot.”), ECF No. 24.
With discovery now completed, the parties contest various aspects of the defendants’
work for the plaintiff in connection with the plaintiff’s sale of the D.C. Property, as well as the
plaintiff’s claim that the defendants negligently misadvised him regarding the potential tax
consequences of that sale. Compare Defs.’ SMF, with Pl.’s Mem. Supp. Pl.’s Mot. Summ. J.
(“Pl.’s Mem.”) at 4–5 (“Statement of Material Facts”), ECF No. 27. These disputes aside, the
parties agree that the plaintiff reported no income from the sale on his 2010 federal tax return
and, as yet, has not amended this return to include any such income, let alone pay any taxes on
that sale. Defs.’ Mem. Supp. Mot. Summ. J. (“Defs.’ Mem.”) at 3, 7, ECF No. 21-1; Pl.’s Opp’n
at 2. With this in mind, in seeking summary judgment, the defendants first argue that the
plaintiff has yet to suffer any actual injury as a result of the defendants’ alleged
misrepresentations and, as a result, lacks standing to pursue his claim in this Court. Defs.’ Mem.
at 5–7.
3
Notably, this issue was neither raised nor considered in connection with the defendants’
motion to dismiss, since the plaintiff’s failure to pay any capital gains taxes associated with the
sale of the D.C. Property only became clear during the course of discovery. Nonetheless, unlike
other defenses, which are generally waived if not made in a defendant’s initial response to a
complaint, FED. R. CIV. P. 12(h)(1)–(2), a challenge to federal subject-matter jurisdiction is not
waivable and may be raised at any point in the proceedings, see FED. R. CIV. P. 12(h)(3) (“If the
court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the
action.” (emphasis added)); see also Mwani v. bin Laden, 417 F.3d 1, 11 (D.C. Cir. 2005).
Instead, as discussed below, the question of the plaintiff’s standing to sue goes directly to the
Court’s jurisdiction over this matter. Accordingly, before scrutinizing the merits of the parties’
respective summary judgment motions, the Court first must assure itself of its authority to
adjudicate the plaintiff’s claim.
II. LEGAL STANDARD
“‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power
authorized by Constitution and statute.’” Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013) (quoting
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). Indeed, federal courts
are “forbidden . . . from acting beyond our authority,” NetworkIP, LLC v. FCC, 548 F.3d 116,
120 (D.C. Cir. 2008), and, therefore, have “an affirmative obligation ‘to consider whether the
constitutional and statutory authority exist for us to hear each dispute,’” James Madison Ltd. ex
rel. Hecht v. Ludwig, 82 F.3d 1085, 1092 (D.C. Cir. 1996) (quoting Herbert v. Nat’l Acad. of
Scis., 974 F.2d 192, 196 (D.C. Cir. 1992)). Absent subject-matter jurisdiction over a case, the
court must dismiss it, FED. R. CIV. P. 12(h)(3); Arbaugh v. Y & H Corp., 546 U.S. 500, 506–07
(2006), and the burden of establishing any jurisdictional facts to support the exercise of the
4
subject matter jurisdiction rests on the plaintiff, see Hertz Corp. v. Friend, 559 U.S. 77, 96–97
(2010); Moms Against Mercury v. FDA, 483 F.3d 824, 828 (D.C. Cir. 2007).
With regard to standing, Article III of the Constitution restricts the power of federal
courts to hear only “Cases” and “Controversies.” U.S. Const. art. III, § 2, cl. 1. “The doctrine of
standing gives meaning to these constitutional limits by ‘identify[ing] those disputes which are
appropriately resolved through the judicial process.’” Susan B. Anthony List v. Driehaus, 134 S.
Ct. 2334, 2341 (2014) (alterations in original) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555,
560 (1992)); Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1146 (2013) (“’One element of the
of the case-or-controversy requirement’ is that plaintiffs ‘must establish that they have standing
to sue.’” (quoting Raines v. Byrd, 521 U.S. 811, 818 (1997))). As the Supreme Court has
explained, “the irreducible constitutional minimum of standing contains three elements.” Defs.
of Wildlife, 504 U.S. at 560. First, the plaintiff must have suffered an “injury in fact,” i.e., “an
invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or
imminent, not conjectural or hypothetical.” Id. (citations and internal quotation marks omitted).
Second, there must be “a causal connection between the injury and the conduct complained of,”
i.e., the injury alleged must be fairly traceable to the challenged action of the defendant. Id.
Finally, it must be likely that the injury will be redressed by a favorable decision. Id. at 561.
With regard to the injury-in-fact requirement, the Supreme Court has “repeatedly
reiterated that ‘threatened injury must be certainly impending to constitute injury in fact,’ and
that ‘[a]llegations of possible future injury’ are not sufficient” to establish standing. Clapper,
133 S. Ct. at 1147 (emphasis in original) (quoting Whitmore v. Arkansas, 495 U.S. 149, 158
(1990)). Thus, while a showing that an injury is “certainly impending” does not require a
showing that the injury is certain to happen, allegations of a future injury resting on a “highly
5
attenuated chain of possibilities” are insufficient to establish standing. Id. at 1147–48. This
concern is particular acute where an asserted injury rests “on speculation about the decisions of
independent actors.” Id. at 1150.
At the summary judgment stage, the plaintiff “can no longer rest on mere allegations, but
must set forth by affidavit or other evidence specific facts, which for purposes of the summary
judgment motion will be taken to be true.” Swanson Grp. Mfg. LLC v. Jewell, 790 F.3d 235, 240
(D.C. Cir. 2015) (internal quotations and alterations omitted) (quoting Defs. of Wildlife, 504 U.S.
at 561). Thus, while “general factual allegations of injury resulting from the defendant’s conduct
may suffice to show standing at the motion to dismiss stage, at summary judgment a court will
not presume the missing facts necessary to establish an element of standing.” Id. (internal
quotations and citations omitted).
III. DISCUSSION
In this case, the gravamen of plaintiff’s claim is that the defendants negligently
misrepresented the potential tax consequences of the plaintiff’s 2010 sale of the D.C. Property to
finance the later purchase of the farm in West Virginia, which led the plaintiff to owe “an
unchangeable tax debt of $76,344 plus penalties and interest that mount daily.” Pl.’s Mot. In
opposing the defendants’ motion for summary judgment, the plaintiff explains that, consistent
with “the advice of his tax preparer,” he did not report income from the sale of the D.C. Property
on his 2010 federal income tax return. Pl.’s Opp’n at 2. The plaintiff’s basis for doing so is
somewhat unclear, and the plaintiff appears to offer conflicting explanations for this decision.
Compare id. at 2 (explaining that the plaintiff did not include this income on his 2010 tax return
“because he did not have the funds to pay [the] tax at [that] time”), with Defs.’ Mem., Ex. A at
81:7-11, ECF No. 21-3 (indicating that that the plaintiff, on the advice of his tax preparer,
6
excluded this income “because [he] honestly believe[d] that [he] didn’t owe it and [he could]
amend [the return] later pending” this outcome of this litigation). In any event, however, the
plaintiff avers that his intention “was and still is to amend the [2010 tax return to retroactively
report the 2010 income] at the end of this suit.” Pl.’s Opp’n at 2. 1
This stated intention notwithstanding, the defendants argue that the plaintiff has yet to
suffer any tangible harm arising from the 2010 transaction and contend that the plaintiff has
therefore failed to demonstrate an injury-in-fact sufficient to establish standing to pursue his
claim in this Court. Defs.’ Mem. at 6–7. In support, the defendants note that the Internal
Revenue Service (“IRS”) “has not imposed any tax liability on [the plaintiff] in connection with
the sale,” and that “available evidence indicates that [the plaintiff] is unlikely to incur any future
IRS liability in connection with” the 2010 transaction. Id. The defendants observe that the
plaintiff has not been audited in the four years since he filed his 2010 tax return and has put
forward no evidence to suggest that he is likely to be audited in the future. Id. at 7. Thus, the
defendants argue, any “future possible injury [alleged by the plaintiff] is speculative at best” and
therefore falls short of an injury-in-fact sufficient to confer standing on the plaintiff. Id.
In connection with the present cross-motions, the parties have provided, and the Court
has identified, no binding authority addressing the question whether potential tax liability may
constitute a cognizable injury sufficient to support standing under Article III. Nonetheless, out-
of-circuit federal courts confronted with this question have consistently held that the mere
possibility of future tax liability, or any associated penalties imposed by the IRS, is insufficient
to establish standing to sue in federal court. See, e.g., SC Note Acquisitions, LLC v. Wells Fargo
Bank, N.A., 934 F. Supp. 2d 516, 526–28 (E.D.N.Y. 2013), aff’d, 548 F. App’x 741 (2d Cir.
1
The plaintiff alleges no other injury arising from the defendants’ alleged negligence. See generally Compl.
7
2014) (rejecting plaintiff’s claim that the defendant negligently adopted an erroneous
interpretation of tax law where the IRS had not yet imposed any additional tax liability on the
plaintiff); Local No. 773 of the Int’l Ass’n of Firefighters v. City of Bristol, No. 3:11CV1657
MPS, 2013 WL 1442453, at *3–4 (D. Conn. Apr. 9, 2013); Scanlan v. Kodak Retirement Income
Plan, 678 F. Supp. 2d 110, 113–14 (W.D.N.Y. 2010); Cole v. Cook, 2006 WL 3791680, at *3
(N.D. Ohio Dec. 22, 2006) (“There is no allegation that the IRS is seeking back taxes from
Plaintiffs, or that it has assessed any penalties against them. The IRS has issued no adverse
ruling against Plaintiffs. Because there is no actual case or controversy, Plaintiffs’ . . . claim is
premature and any decision . . . would be advisory only.”); Daines v. Alcatel, S.A., 105 F. Supp.
2d 1153, 1155 (E.D. Wash. 2000) (holding that the plaintiff’s request for a court order requiring
the defendants to “advance” the plaintiff money to cover a potential, but as-yet uncertain tax
liability did not satisfy the jurisdictional requirements of Article III).2
While these decisions are non-binding, this general consensus is unsurprising. Indeed,
the plaintiff’s asserted injury rests on the assumption that at least two future events will come to
pass that, only together, would result in the plaintiff incurring the additional tax liability for
which he now seeks monetary relief. Specifically, first, at some future date, the IRS must initiate
an audit of the plaintiff and, second, as a result of this audit, the IRS must conclude that the
plaintiff owes additional taxes stemming from the sale of the D.C. Property. Beyond the general
reluctance recognized by the Supreme Court to recognize standing based primarily “on
speculation about the decisions of independent actors,” Clapper, 133 S. Ct. at 1150, the plaintiff
2
At least one federal district court has found standing where a plaintiff sought declaratory relief, as opposed
to actual damages, in connection with any additional tax liability resulting from an ongoing IRS audit. See Nathel v.
Siegal, 592 F. Supp. 2d 452, 473 (S.D.N.Y. 2008). By contrast, here, the plaintiff presents no evidence that he is
currently being audited by the IRS or that any such audit is impending or otherwise likely. Defs.’ Opp’n at 7.
Absent any indication that the plaintiff will soon incur additional tax liability associated with the 2010 sale of the
D.C. Property, the plaintiff’s present request for as-yet hypothetical damages stemming from the defendants’ alleged
negligence is insufficient to constitute an injury-in-fact amenable to resolution by this Court.
8
has offered no evidence that such an audit is imminent or likely, or that any future audit would
result in the plaintiff owing additional taxes stemming from the 2010 transaction.
The plaintiff’s conclusory assertion that, as “a matter of federal tax law[,] . . . the
proceeds from a commercial real estate sale incur a tax” is unavailing. Pl.’s Rebuttal Defs.’ Mot.
Summ. J. at 1, ECF No. 23. As another federal court has explained, “were the Court to allow [a]
case to proceed prior to an IRS determination and plaintiff was victorious in [his] lawsuit, but the
IRS later determined that [no back-taxes were owed, the] plaintiff would receive a windfall.” SC
Note Acquisitions, LLC, 934 F. Supp. 2d at 527. For this reason, among others, premature
resolution of the sort of speculative injuries alleged by the plaintiff generally are insufficient to
establish standing in federal court. See Clapper, 133 S. Ct. at 1150. Put simply, the Court
“cannot decide a case with a hypothetical injury that may never occur.” SC Note Acquisitions,
LLC, 934 F. Supp. 2d at 527. 3 Thus, until the injury alleged by the plaintiff is certainly
impending, and not reliant on a chain of possible actions of third parties, the plaintiff has failed
to establish a case or controversy that may be resolved by this Court. See Clapper, 133 S. Ct. at
1147–48.
In so concluding, the Court is mindful of the plaintiff’s concern that he may, at some
future date, be found to have a substantial tax liability, in addition to any attendant fees or
interest, stemming from the 2010 transaction. Given this uncertainty, the plaintiff’s desire to
seek immediate resolution of his claim against the defendants is certainly understandable.
Though the swift resolution of private disputes may be preferable in many circumstances,
3
While the Complaint leaves some uncertainty regarding the nature of the plaintiff’s requested relief, the
plaintiff’s request for entry of “final judgment that the violations of law [alleged by the plaintiff] have occurred”
may be construed as a request for declaratory judgment requiring the defendants to pay whatever future tax liability
the plaintiff may incur as a result of the 2010 transaction. Compl. at 6. Even so construed, however, the Complaint
fails to allege any actual or imminent injury that does not rest on hypothetical future events.
9
however, the Constitution constrains this Court’s ability to resolve disputes that present no
specific injury that may be redressed by a favorable ruling by the Court. For this reason, because
the plaintiff does not allege that any injury arising from his interaction with the defendants is
“certainly impending,” he has failed to establish standing to pursue his claim against the
defendants.
IV. CONCLUSION
Having concluded that the plaintiff does not have standing to bring his claim at this time,
the Court lacks subject-matter jurisdiction to resolve the parties’ pending cross-motions and must
instead dismiss the plaintiff’s Complaint without prejudice. See Swanson Grp. Mfg. LLC v.
Jewell, 790 F.3d 235, 246 (D.C. Cir. 2015) (vacating summary judgment where the plaintiff
lacked standing and remanding with instructions to dismiss the complaint); Taylor v. FDIC, 132
F.3d 753, 769 (D.C. Cir. 1997) (same). Dismissing the Complaint without reaching the merits of
the parties’ cross-motions “clears the path for future relitigation of the issues” should the plaintiff
later establish his standing to sue. See Maydak v. United States, 630 F.3d 166, 177 (D.C. Cir.
2010) (internal quotations omitted) (quoting Ramallo v. Reno, 114 F.3d 1210, 1214 (D.C. Cir.
1997)).
For the foregoing reasons, the plaintiff’s remaining claim against the defendants is
dismissed, without prejudice. Accordingly, the parties’ pending motions for summary judgment
are each denied, as moot.
Digitally signed by Hon. Beryl A. Howell,
United States District Court Judge
Date: February 11, 2016 DN: cn=Hon. Beryl A. Howell, United States
District Court Judge, o=U.S. District Court
for the District of Columbia, ou,
email=Howell_Chambers@dcd.uscourts.g
ov, c=US
Date: 2016.02.11 18:13:41 -05'00'
__________________________
BERYL A. HOWELL
United States District Judge
10