Jodi C. Hohman; JHohman, LLC; You Got Busted By Me, LLC; Terry Miller, Plaintiffs-Appellants,
Maurice Eadie, et al., Defendants, United States of America; Department of Treasury; Internal Revenue Service, Defendants-Appellees.
Argued: April 26, 2018
from the United States District Court for the Eastern
District of Michigan at Detroit. No. 2:16-cv-11429-Matthew F.
Leitman, District Judge.
M. Schwartz, CLARK HILL PLC, Detroit, Michigan, for
A. Allulis, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellees.
M. Schwartz, CLARK HILL PLC, Detroit, Michigan, for
A. Allulis, Michael J. Haungs, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellees.
Before: MERRITT, WHITE, and DONALD, Circuit Judges
MERRITT, Circuit Judge.
appeal raises a highly technical issue arising from a
potential conflict between the Internal Revenue Code and the
Federal Right to Financial Privacy Act of 1978, 12 U.S.C.
§§ 3401-3422. The IRS issued two "John Doe"
summonses without first obtaining approval in a federal
district court as required by the Internal Revenue Code
("Code"), see I.R.C. § 7609(f). The
IRS served the summonses on Chase Bank to obtain financial
records relating to two limited liability companies
("LLCs"). Plaintiffs, the LLCs and subjects of the
John Doe summonses, alleged that the IRS's use of the
John Doe summonses to obtain their financial records violated
the Right to Financial Privacy Act ("Act"). The
district court granted the government's motion to dismiss
for lack of subject matter jurisdiction after determining
that sovereign immunity barred Plaintiffs' claims under
the Act. The issues on appeal are (1) whether the IRS is
subject to the Act when it fails to follow its own procedures
under the Code, and (2) whether LLCs fall within the
Act's waiver of sovereign immunity. We
AFFIRM the district court on sovereign
FACTUAL AND PROCEDURAL BACKGROUND
Internal Revenue Code permits the IRS to serve administrative
summonses on third parties to produce records related to
taxpayers whom the IRS is investigating. See I.R.C.
§ 7603. Generally, these summonses must identify the
person whose records are sought. See I.R.C §
7609. However, the IRS may also serve a John Doe summons,
which does not identify the person whose records are sought.
I.R.C. § 7609(f). This type of summons may be served
only after a federal district court proceeding in which the
IRS establishes that:
(1)the summons relates to the investigation of a particular
person or ascertainable group or class of persons,
(2)there is a reasonable basis for believing that such person
or group or class of persons may fail or may have failed to
comply with any provision of any internal revenue law, and
(3) the information sought to be obtained. . . is not readily
available from other sources.
September 25, 2015, the IRS served a John Doe summons on
Chase Bank that sought financial records for two separate
accounts (the "First John Doe Summons"). Five days
later, on September 30, the IRS served a second John Doe
summons that sought financial records for a single account
(the "Second John Doe Summons"). The three accounts
involved were identified only by account numbers. The IRS
failed to seek approval from a federal district court prior
to issuing either of the John Doe summonses.
October 2015, Chase Bank notified Jodi C. Hohman
("Hohman") and her company JHohman, LLC that it had
received the First John Doe Summons from the IRS and that the
summons sought records for accounts relating to them. On
November 25, 2015, Hohman and JHohman, LLC filed a petition
in federal district court to quash the summons. In the
petition to quash, Hohman and JHohman, LLC argued that the
First John Doe Summons did not meet the requirements listed
in I.R.C. § 7609(f), which requires the IRS to obtain
approval from a federal court before serving a John Doe
response to the petition to quash, the IRS produced sworn
declarations from the IRS agents who had issued the First
John Doe Summons. It attached a partially-redacted copy of
the First John Doe Summons to the declarations. The document
revealed the first account number listed on the summons, but
the second account number was redacted. Hohman and JHohman,
LLC reviewed the document and determined that the first
account number on that summons belonged to JHohman, LLC.
Because the second account number remained masked, they were
unable to determine who owned that account. Their subsequent
investigation led them to believe that the second account
either belonged to Terry Miller ("Miller"),
individually, or his company, You Got Busted By Me, LLC
("Busted, LLC"). Miller is the sole member and
owner of Busted, LLC.
proceeding also revealed that the IRS had served the Second
John Doe Summons on Chase Bank. The IRS attached an
unredacted copy of the Second John Doe Summons to the
declarations. Hohman and JHohman, LLC determined that the
summons sought records relating to an account belonging to
Hohman, individually. They later withdrew their petition to
Hohman, JHohman, LLC, Miller, and Busted, LLC (collectively,
"Plaintiffs") filed suit against the United States,
two IRS employees, and unnamed Jane and John Does, on April
20, 2016, alleging that the IRS violated the Right to
Financial Privacy Act, the Privacy Act of 5 U.S.C. §
552a, the Fourth and Fifth Amendments of the Constitution,
and the Internal Revenue Code's prohibition of the
unauthorized disclosure of tax return information.
24, 2016, the government moved to dismiss the complaint.
After a hearing, the district court granted this motion in
regards to the claims under the Privacy Act, the Fourth and
Fifth Amendments, and the Code's prohibition of the
unauthorized disclosure of return information. Hohman v.
Eadie, No. 16-cv-11429, 2016 WL 10906875, at *1 (E.D.
Mich. Nov. 7, 2016). However, the district court denied the
motion to dismiss as to the Right to Financial Privacy Act
claim, which is the sole claim ...