15‐3964 Minda v. United States

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term 2016

(Argued: December 2, 2016 Decided: March 24, 2017)

Docket No. 15‐3964

GARY MINDA,

Plaintiff‐Appellant,

NANCY FINDLAY FROST,

Plaintiff,

v.

UNITED STATES OF AMERICA,

Defendant‐Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK

Before: LIVINGSTON, CHIN, AND CARNEY, Circuit Judges.

Appeal from a judgment of the United States District Court for the

Eastern District of New York (Gershon, J.), awarding statutory damages of $1,000

to each of the plaintiff taxpayers on account of the Internal Revenue Serviceʹs

unauthorized disclosure of their tax information to an unrelated third party. The

district court granted summary judgment to defendant‐appellee United States of

America, rejecting the taxpayersʹ contentions that they were entitled to statutory

damages of more than $1,000. On appeal, plaintiff‐appellant Gary Minda

contends that the district court erred in (1) limiting the award of statutory

damages to $1,000, and (2) concluding that he was not entitled to punitive

damages as a matter of law.

AFFIRMED.

KATHLEEN PAKENHAM, Cooley LLP, New York, NY, for Plaintiff‐Appellant Gary Minda.

JENNIFER M. RUBIN (Jonathan S. Cohen, on the brief), for David A. Hubbert, Acting Assistant Attorney General, Tax Division, Department of Justice, Washington, D.C., and Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, Brooklyn, NY, for Defendant‐Appellee United States of America.

2

CHIN, Circuit Judge:

In this case, the Internal Revenue Service (the ʺIRSʺ) conducted an

examination of the 2007 income tax return of Gary Minda and Nancy Findlay

Frost. The IRS prepared a report proposing changes to the return. Instead of

sending the report to Minda and Frost, however, the IRS sent the report, which

contained their names, social security numbers, and financial information, to the

wrong person ‐‐ an unauthorized, unrelated third party.

Minda and Frost brought this action below pursuant to

, which permits a taxpayer whose return or return information has been

unlawfully disclosed to bring a civil action against the United States for

damages. The government conceded liability and acknowledged that Minda and

Frost were entitled to $1,000 each in statutory damages for the disclosure of the

report. Minda and Frost argued, however, that they were entitled to statutory

damages of $1,000 not just for the disclosure of the report but for the disclosure

of each item of information contained in the report. They also sought punitive

damages.

3

The government moved for summary judgment to dismiss these

additional claims. The district court granted the motion and entered judgment

accordingly. For the reasons set forth below, we affirm.

BACKGROUND

A. The Facts

The facts are largely undisputed and may be summarized as follows:

In 2009, an IRS employee prepared an examination report (the

ʺReportʺ) proposing changes to the 2007 federal income tax return filed by Minda

and Frost. The Report contained ʺdozens of items of return information,ʺ

including their names, social security numbers, and detailed financial

information. Compl. ¶ 10.

In or about October 2010, the IRS mailed a copy of the Report to an

unrelated third party in Ohio, ʺRobert M.ʺ On October 21, 2010, Robert M.ʹs

attorney wrote to the IRS advising that the IRS had erroneously sent the Report

to his client:

In the packet sent to my client [Robert M.], there were nine (9) pages, that dealt with Income Tax Examination changes for a Gary Minda and T. Nancy Findlay Frost . . . . I assume you will want to re‐send them to the correct person. We are sending a copy of this letter to these taxpayers (with any confidential information related to my client redacted).

4

Compl. ¶ 9. The Report is eleven pages. Hence, it appears that the IRS did not

send the entire Report to Robert M., but only nine of the eleven pages.

On October 26, 2010, Minda and Frost learned of the disclosure of

the Report to Robert M. when they received a copy of the attorneyʹs letter to the

IRS.

Minda complained about the unauthorized disclosure to the IRS,

which then conducted an investigation. After interviewing a number of

individuals, the Treasury Inspector General for Tax Administration (the ʺIGʺ)

made the following findings:

● the Report, which was dated October 5, 2009, was printed the

week of September 28, 2009, for review by a financial technician;

● the Report was ʺlikely co‐mingledʺ with a report for Robert M.

dated September 28, 2009;

● the two reports were generated by different units located in

different departments working different shifts and using different printers; and

● the IRS employee who made the unauthorized disclosure

could not be identified.

5

One IRS employee speculated that the Report had been accidentally

left on a printer and then gotten mixed in with Robert M.ʹs documents. Another

IRS employee hypothesized that a ʺnetwork errorʺ might have caused the Report

to print on the wrong printer.

Minda and Frost did not suffer any actual damages as a result of the

unauthorized disclosure of their return information.

B. The Proceedings Below

Minda and Frost filed this action in the district court on October 24,

2012. The government answered on December 21, 2012, conceding that the IRS

ʺby way of negligence disclosed plaintiffsʹ return information to a third party,ʺ

and requesting that the district court deny all relief other than statutory

damages. App. 13.

On December 8, 2014, the government moved for summary

judgment, contending that Minda and Frost were entitled to only $1,000 each in

statutory damages and that they were not entitled to punitive damages as a

matter of law. Minda and Frost opposed the motion, conceding that the material

facts were undisputed, but arguing that they were entitled to statutory damages

6

for each item of information disclosed in the Report and that punitive damages

were appropriate.

The district court granted the governmentʹs motion. Minda v. United

States, No. 12‐CV‐05339 (NG),

(E.D.N.Y. Oct. 9, 2015). On

October 9, 2015, the district court entered judgment in favor of Minda and Frost,

awarding them $1,000 each. Minda (but not Frost) appealed.

DISCUSSION

We review de novo a district courtʹs grant of summary judgment,

ʺconstruing the evidence in the light most favorable to the non‐moving party and

drawing all reasonable inferences in its favor.ʺ SCR Joint Venture L.P. v.

Warshawsky,

(2d Cir. 2009). Our task is ʺto determine whether

the district court properly concluded that there was no genuine dispute as to any

material fact, such that the moving party was entitled to judgment as a matter of

law.ʺ Myers v. Patterson,

(2d Cir. 2016).

A. Applicable Law

Section 6103(a) of the Internal Revenue Code provides that ʺno

officer or employee of the United States . . . shall disclose any return or return

7

information,ʺ except to the extent disclosure is authorized under the Code.

(a)(1); see

§ 6103(c)‐(p).

A ʺreturnʺ is:

any tax or information return, declaration of estimated tax, or claim for refund required by, or provided for or permitted under, the provisions of this title which is filed with the Secretary by, on behalf of, or with respect to any person, and any amendment or supplement thereto, including supporting schedules, attachments, or lists which are supplemental to, or part of, the return so filed.

(b)(1).

As relevant here, ʺreturn informationʺ is:

a taxpayerʹs identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, . . . or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense,

(b)(2)(A).

A ʺdisclosureʺ is ʺthe making known to any person in any manner

whatever a return or return information.ʺ

(b)(8).

If an officer or employee of the United States ʺknowingly, or by

reason of negligence,ʺ discloses a return or return information of a taxpayer,

8

subject to certain exceptions that do not apply here, the taxpayer may bring a

civil action for damages against the United States in district court.

(a)(1). Section 7431(c) governs damages:

In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the sum of ‐‐

(1) the greater of ‐‐

(A) $1,000 for each act of unauthorized inspection or disclosure of a return or return information with respect to which such defendant is found liable, or

(B) the sum of ‐‐

(i) the actual damages sustained by the plaintiff as a result of such unauthorized inspection or disclosure, plus

(ii) in the case of a willful inspection or disclosure or an inspection or disclosure which is the result of gross negligence, punitive damages, plus

(2) the costs of the action, plus

(3) in the case of a plaintiff which is described in section 7430(c)(4)(A)(ii), reasonable attorneys fees, except that if the defendant is the United States, reasonable attorneys fees may be awarded only if the plaintiff is the prevailing party (as determined under section 7430(c)(4)).

(c).

9

B. Application

As the government concedes, the IRS disclosed Mindaʹs return

information without authorization, in violation of § 6103(a)(1). Likewise, Minda

acknowledges that he did not suffer any actual damages as a result of the

disclosure. Hence, two matters are presented on appeal: first, the calculation of

statutory damages under § 7431(c)(1)(A), which allows ʺ$1,000 for each act of

unauthorized inspection or disclosure of a return or return information,ʺ and,

second, the availability of punitive damages under § 7431(c)(1)(B)(ii), which

allows punitive damages for an inspection or disclosure that is ʺwillfulʺ or ʺthe

result of gross negligence.ʺ

1. Statutory Damages

The district court concluded that Minda was entitled to statutory

damages only for the act of disclosing the Report and not separately for

disclosure of each item of information contained in the Report. We agree.

Section 7431(c)(1)(A) provides that an aggrieved taxpayer is entitled

to statutory damages of $1,000 for ʺeach actʺ of unauthorized inspection or

disclosure. The word ʺactʺ is not defined in the statute, and thus it is presumed

to have its ordinary meaning. Smith v. United States,

(1993); see

10

also Taniguchi v. Kan Pac. Saipan, Ltd.,

(2012) (holding that

ʺ[w]hen a term goes undefined in a statute, we give the term its ordinary

meaning,ʺ and consulting dictionaries to determine ordinary meaning). The

ordinary meaning of the word ʺactʺ is ʺa thing done or being done.ʺ Websterʹs

Third New Intʹl Dict. of the Engl. Lang., at 20 (1961). The ʺthing done or being

doneʺ in the statute here is the act of unauthorized inspection or disclosure ‐‐ in

this case a single act of disclosure, the errant mailing of the Report.

Minda argues that § 7431(c) ʺshould be read to impose a penalty for

each item of return information disclosed.ʺ Pl.‐Appellantʹs Br. 7. The argument,

however, ignores the plain words of the statute and would require us to read

words into the statute that are not there. See Dean v. United States,

(2009) (courts must ʺordinarily resist reading words or elements into a statute

that do not appear on its faceʺ) (quoting Bates v. United States,

(1997)). Section 7431(c)(1)(A) provides statutory damages ʺfor each act . . . of

disclosure,ʺ not ʺfor each item of return information disclosed.ʺ The word ʺeachʺ

modifies ʺact,ʺ not ʺinformation.ʺ The phrase ʺeach item of return informationʺ

does not appear.

11

The statute also refers to ʺeach act of . . . disclosure of a return or

return information.ʺ A return, of course, will contain multiple items of

information, and likewise ʺreturn informationʺ clearly encompasses multiple

items of information. Yet, § 7431(c)(1)(A) treats the disclosure of either ‐‐ ʺa

return or return informationʺ ‐‐ as one act subject to one award of statutory

damages of $1,000. Mindaʹs contention that each item of information constitutes

a separate disclosure subject to a separate award of statutory damages

contradicts this language.

Finally, we note that Mindaʹs interpretation simply does not make

sense. The Report arguably contains dozens of items of return information, as

there are more than a hundred different entries. Under Mindaʹs theory, each of

these items would constitute a separate disclosure, and he would be entitled to

more than $100,000 in statutory damages, even though he suffered no actual

damages and the IRS was guilty of only one act of unauthorized disclosure. In

addition, a taxpayer whose name and Social Security number were disclosed, for

example, would receive more in statutory damages than one whose entire return

‐‐ containing his name, Social Security number, and much more ‐‐ was disclosed.

Congress could not have intended such a result.

12

We find no ambiguity in the statute, and hold that the statute clearly

provides an aggrieved taxpayer $1,000 in statutory damages for ʺeach actʺ of

unauthorized disclosure, not for each item of information disclosed. Accord

Rorex v. Traynor,

(8th Cir. 1985) (limiting taxpayers to $1,000 in

statutory damages where IRS employee disclosed multiple items of information

in one communication);1 Marré v. United States, No. H‐88‐1103,

,

at *2 (S.D. Tex. June 22, 1992) (holding that statutory damages under

§ 7431(c)(1)(A) would be based on number of actionable communications, and

declining to ʺcarve up each communication into separate, actionable disclosures,

even where we deal, not with reiterated facts, but with distinct, though related,

items of return informationʺ), affʹd in part and vacated in part on other grounds,

(5th Cir. 1994); Smith v. United States,

(C.D. Ill.

1990) (holding that taxpayer was entitled to only $1,000 in statutory damages for

disclosure of one memorandum, even though memorandum contained

taxpayerʹs return information for multiple tax years), revʹd on other grounds, 964

1 A subsequent Eighth Circuit case counted the verbal disclosure of six pieces of return information during an interview as six separate acts of disclosure. See Snider v. United States,

, 506, 509 (8th Cir. 2006). Even assuming arguendo that Snider was correctly decided, however, the situation here is closer to that in Rorex, where the act of disclosure was the service of a notice of levy on the taxpayersʹ bank containing ʺconfidential return information about the taxpayers.ʺ

.

(7th Cir. 1992); cf. Siddiqui v. United States,

(9th Cir.

2004) (ʺThe plain meaning of the language used by Congress in § 6103 supports

our focus . . . on the act of disclosure rather than the number of people who

receive unauthorized information.ʺ).

Finally, to the extent there is any doubt, we must resolve the matter

in favor of the government. Where, as here, Congress has waived sovereign

immunity, ʺprecedent teaches ʹthat the [g]overnmentʹs consent to be sued must

be construed strictly in favor of the sovereign, and not enlarged beyond what the

language requires.ʹʺ Adeleke v. United States,

(2d Cir. 2004)

(quoting United States v. Nordic Village, Inc.,

(1992)).

2. Punitive Damages

The district court held that Minda was not entitled to punitive

damages as a matter of law because no reasonable jury could find, on the record

presented, that the disclosure resulted from anything other than ordinary

negligence. We agree.2

2 Consequently, we do not reach the governmentʹs argument that, under § 7431(c)(1)(B)(ii), a taxpayer may not recover punitive damages unless he sustained actual damages. Compare Barrett v. United States,

(S.D. Tex. 1995) (ʺThe very language and structure of the statute, the coupling of actual and punitive damages under subpart (1)(B) and failure of the statutory damages subpart, (1)(A), to mention punitive damages, would, logically, mean that punitive damages are

14

Under § 7431(c)(1)(B)(ii), punitive damages may be recovered ʺin the

case of a willful inspection or disclosure or an inspection or disclosure which is

the result of gross negligence.ʺ

(c)(1)(B)(ii). Minda argues that

the IRS was guilty of gross negligence. In particular, he contends that ʺ[i]t is

apparent here that the IRS personnel responsible for Mr. Mindaʹs Audit Report

completely disregarded their duty to maintain taxpayer confidentiality.ʺ Pl.‐

Appellantʹs Br. 17.

Gross negligence requires conduct that is ʺhighly unreasonable and

which represents an extreme departure from the standards of ordinary care . . . to

the extent that the danger was either known to the defendant or so obvious the

defendant must have been aware of it,ʺ that is, ʺconduct that evinces a reckless

disregard for the rights of others or smacks of intentional wrongdoing.ʺ AMW

Materials Testing, Inc. v. Town of Babylon,

(2d Cir. 2009) (internal

quotation marks and citations omitted) (discussing common law definitions of

gross negligence and reckless conduct); see also Barrett v. United States,

(5th Cir. 1996) (affirming dismissal of punitive damages claim under

recoverable only when actual damages have been proved.ʺ), affʹd on other grounds,

(5th Cir. 1996), with Mallas v. United States,

(4th Cir. 1993) (holding that, under § 7431(c), ʺa taxpayer may recover punitive damages, even where his actual damages are zero, provided those damages exceed the amount of the subsection (1)(A) damagesʺ).

15

§ 7431(c) and noting that ʺ[c]onduct that is grossly negligent is . . . marked by

ʹwanton or reckless disregard of the rights of anotherʹʺ (citation omitted)). To be

grossly negligent, ʺʹthe act or omission must be of an aggravated character, as

distinguished from the failure to exercise ordinary care.ʹʺ Curley v. AMR Corp.,

(2d Cir. 1998) (citation omitted).

Minda has pointed to no evidence of aggravated conduct or the

wanton or reckless disregard of his rights or conduct smacking of intentional

wrongdoing. To be sure, someone at the IRS failed to exercise reasonable care,

sending nine pages of the Report to the wrong person. But there is nothing in the

record to suggest that this was anything other than the result of simple

negligence or carelessness. On the record presented to the district court, a

reasonable factfinder could conclude only that the Report inadvertently became

commingled with Robert M.ʹs documents, and that an IRS employee then sent

the package to Robert M. without realizing it contained materials relating to two

other taxpayers.

The district court correctly granted summary judgment to the

United States on Mindaʹs claim for punitive damages.

16

CONCLUSION

For the reasons set forth above, the judgment of the district court is

AFFIRMED.

17