DOJ Argues for Narrow Set Aside of Conservation Easement Guidance

GBX ASSOCIATES LLC,
Plaintiff,
v.
UNITED STATES OF AMERICA, et al.,
Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

Judge Pamela A. Barker

DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT

In response and opposition to the plaintiff GBX Associates LLC's (“GBX”) motion for summary judgment, the defendants United States of America, Department of the Treasury, and IRS cross-move for summary judgment that IRS Notice 2017-10 is held unlawful and set aside as to GBX only. A supporting brief is attached.

Respectfully Submitted,

DAVID A. HUBBERT
Deputy Assistant Attorney General
U.S. Department of Justice,
Tax Division

EDWARD J. MURPHY
RYAN D. GALISEWSKI
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 55
Washington, D.C. 20044
Tel: (202) 307-6064/(202) 305-3719
Fax: (202) 514-5238
Edward.J.Murphy@usdoj.gov
Ryan.D.Galisewski@usdoj.gov

BRIEF IN SUPPORT OF
DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT AND
IN OPPOSITION TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

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TABLE OF CONTENTS

I. Introduction

II. Background

III. Argument

IV. Conclusion

TABLE OF AUTHORITIES

Cases

Allied-Signal v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146 (D.C. Cir. 1993) 

Alvarez v. Smith, 558 U.S. 87 (2009) 

Ammex, Inc. v. United States, 367 F.3d 530 (6th Cir. 2004) 

Arizona v. Biden, 31 F.4th 469 (6th Cir. Apr. 12, 2022) (Sutton, C.J., concurring) 

Arizona v. City & County of San Francisco, California, __ S. Ct. __, 2022 WL 2135493 (June 15, 2022) 

Arizona v. Evans, 514 U.S. 1 (1995) (Ginsburg, J., dissenting)

Ass'n of Am. Physicians & Surgeons v. FDA, 13 F.4th 531 (6th Cir. 2021) 

Biggs v. Quicken Loans, Inc., 990 F. Supp. 2d 780 (E.D. Mich. 2014) 

Black Warrior Riverkeeper, Inc. v. U.S. Army Corps of Eng'rs, 781 F.3d 1271 (11th Cir. 2015) 

California v. Texas, 141 S. Ct. 2104 (2021) 

CASA de Md., Inc. v. Trump, 971 F.3d 220, (4th Cir.), reh'g en banc granted, 981 F.3d 311 (4th Cir. 2020), voluntarily dismissed prior to hearing 

CIC Services, LLC v. IRS, 141 S. Ct. 1582 (2021)

City of Chicago v. Barr, 961 F.3d 882 (7th Cir. 2020) 

Clapper v. Amnesty Intern. USA, 568 U.S. 398 (2013) 

Comcast Corp. v. Behrend, 569 U.S. 27 (2013) 

DamilerChrysler Corp. v. Cuno, 547 U.S. 332 (2006) 

Dep't of Army v. Blue Fox, Inc., 525 U.S. 255 (1999)

Dep't of Homeland Sec. v. New York, 140 S. Ct. 599 (2020) (Gorsuch, J., concurring)

Estate of Smith ex rel. Richardson v. United States, 509 F. App'x 436 (6th Cir. 2012) 

FAA v. Cooper, 566 U.S. 284 (2012) 

Friends of the Earth v. Haaland, __ F.Supp.3d __ 2022 WL 254526 (D.D.C. Jan. 27, 2022) 

Gill v. Whitford, 138 S. Ct. 1916 (2018) 

Gun Owners of America, Inc. v. Garland, 992 F.3d 446 (6th Cir. 2021), vacated on other grounds, 19 F.4th 890 (6th Cir. 2021) (en banc)

Hill v. Snyder, 821 F.3d 763 (6th Cir. 2016)

In re Caudill, No. 20-3834, 2020 WL 6748203 (6th Cir. Oct. 30, 2020)

Johnson v. Governor of New Jersey, No. 21-1795, 2022 WL 767035 (3d Cir. Mar. 14, 2022)

Kentuckians for the Commonwealth, Inc. v. Rivenburgh, 317 F.3d 425 (4th Cir. 2003) 

Lee v. City of Columbus, No. 2:07-cv-1230, 2008 WL 2557255 (S.D. Ohio June 24, 2008) 

Los Angeles Haven Hospice, Inc. v. Sebelius, 638 F.3d 644 (9th Cir. 2011) 

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) 

Madsen v. Women's Health Ctr., Inc., 512 U.S. 753 (1994) 

Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. Mar. 3, 2022)

Mass. Delivery Ass'n v. Coakley, 671 F.3d 33 (1st Cir. 2012) 

Monsanto Co. v. Geerston Seed Farms, 561 U.S. 139 (2010) 

Morris v. U.S. Army Corps of Eng'rs, 60 F. Supp. 3d 1120 (D. Idaho 2014)

National Mining Association v. U.S. Army Corps of Engineers, 145 F.3d 1399, 1409 (D.C. Cir. 1998) 

Nken v. Holder, 556 U.S. 418 (2009) 

Portsmouth Ambulance, Inc. v. United States, 756 F.3d 494 (6th Cir. 2014) 

Powers v. Ohio, 499 U.S. 400 (1991) 

Salazar v. Buono, 559 U.S. 700 (2010) 

Sharpe v. Cureton, 319 F.3d 259 (6th Cir. 2003)

Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26 (1976) 

Skyworks, Ltd. v. Centers for Disease Control, 542 F. Supp. 3d 719 (N.D. Ohio 2021) 

Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs, 985 F.3d 1032 (D.C. Cir. 2021) 

Summers v. Earth Island Institute, 555 U.S. 488 (2009)

Tennessee Hospital Association v. Azar, 908 F.3d 1029 (6th Cir. 2018) 

Tesmer v. Granholm, 333 F.3d 683 (6th Cir. 2003), overruled on other grounds sub nom Kowalski v. Tesmer, 543 U.S. 125 (2004)

Town of Chester, N.Y. v. Laroe Estates, Inc., 137 S. Ct. 1645 (2017) 

TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021) 

Trump v. Hawaii, 138 S. Ct. 2392 (2018) (Thomas, J., concurring)

United States v. Mendoza, 464 U.S. 154 (1984) 

Virginia Society for Human Life, Inc. v. FEC, 263 F.3d 379 (4th Cir. 2001)

Warth v. Seldin, 422 U.S. 490 (1975)

Washington v. Reno, 35 F.3d 1093 (6th Cir. 1994) 

Webster v. Doe, 486 U.S. 592 (1988)

Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982) 

Statutes

5 U.S.C. § 702 

5 U.S.C. § 703 

5 U.S.C. § 706 

26 U.S.C. § 6111 

26 U.S.C. § 6111(b)(1)

26 U.S.C. § 6112 

26. U.S.C. § 6707A(c)(1) 

26. U.S.C. § 6707A(c)(2) 

26. U.S.C. § 7421(a) 

28. U.S.C. § 2201

Other Authorities

26 C.F.R. § 1.6011-4 

26. C.F.R. § 1.6011-4(d) 

26. C.F.R. § 301.6111-3(d)(1) 

26. C.F.R. § 301.6111-3(d)(2)

IRS increases enforcement action on Syndicated Conservation Easements, https://www.irs.gov/newsroom/irs-increases-enforcement-action-on-syndicated-conservation-easements [https://perma.cc/M9N7-6CJL] 

IRS Notice 2007-83, 2007-45 I.R.B. 960

IRS Notice 2017-10, 2017-4 I.R.B. 544

IRS wraps up its 2021 “Dirty Dozen” scams list with warning about promoted abusive arrangements https://www.irs.gov/newsroom/irs-wraps-up-its-2021-dirty-dozen-scams-list-with-warning-about-promoted-abusive-arrangements [https://perma.cc/7J2H-YGSV] 

IRS wraps up 2022 “Dirty Dozen” scams list; agency urges taxpayers to watch out for tax avoidance strategies https://www.irs.gov/newsroom/irs-wraps-up-2022-dirty-dozen-scams-list-agency-urges-taxpayers-to-watch-out-for-tax-avoidance-strategies [https://perma.cc/6BW3-737D]

John Harrison, Section 706 of the Administrative Procedure Act Does Not Call for Universal Injunctions or Other Universal Remedies, 37 Yale J. Reg. Bull. 37, 41–47 (2020)

Mila Sohoni, The Power to Vacate a Rule, 88 Geo. Wash. L. Rev. 1121, 1191–92 (2020)

Samuel L. Bray, Multiple Chancellors: Reforming the National Injunction, 131 Harv. L. Rev. 417, 438 n.121 (2017) 

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I. Introduction

Plaintiff GBX Associates LLC (“GBX”) has sued the United States of America, Department of the Treasury, and IRS (collectively, the “United States”) under the Administrative Procedure Act (“APA”) seeking to invalidate IRS Notice 2017-10, 2017-4 I.R.B. 544 (“the Notice”), which identifies certain syndicated conservation easement transactions as “listed transactions” subject to reporting and recordkeeping requirements. The United States concedes that the Notice is unlawful under the APA based on controlling Sixth Circuit authority in Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. Mar. 3, 2022). Mann held that another IRS listed transaction notice was a legislative rule and that, because the IRS issued it without following notice-and-comment procedures, it was promulgated in violation of the APA. The United States agrees that the analysis in Mann applies to the Notice and that the Court should, under 5 U.S.C. § 706, “hold unlawful and set aside” the Notice as to GBX.

However, the United States disagrees emphatically with GBX's proposed remedy that would extend relief beyond the plaintiff in this case and invalidate the Notice beyond the Sixth Circuit. The United States maintains that it should still be able to argue in cases outside the Sixth Circuit that Mann was wrongly decided and that the Notice (as well as other listed transaction notices issued without notice and comment) remain valid and enforceable.

In seeking nationwide relief disconnected from the plaintiff's own injury, GBX takes a position that another judge of this Court declined to adopt last year, see Skyworks, Ltd. v. Centers for Disease Control, 542 F. Supp. 3d 719 (N.D. Ohio 2021); that was sharply criticized just two months ago by the Chief Judge of the Sixth Circuit who wrote the Mann opinion, see Arizona v. Biden, 31 F.4th 469, 484 (6th Cir. Apr. 12, 2022) (Sutton, C.J., concurring); and that has been assailed by two justices of the Supreme Court, see Trump v. Hawaii, 138 S. Ct. 2392, 2425 (2018) (Thomas, J., concurring), and Dep't of Homeland Sec. v. New York, 140 S. Ct. 599, 600 (2020) (Gorsuch, J., concurring). This brief will demonstrate that the sweeping judgment sought by GBX is not mandated by the APA and would violate basic principles of Article III, equity jurisdiction, and sovereign immunity, while inhibiting development of the law. The Court should therefore deny GBX's motion for summary judgment and grant the United States' cross-motion.

II. Background

As part of the IRS's program to combat abusive tax shelters, the Internal Revenue Code allows any transaction that is “of a type which the Secretary determines as having a potential for tax avoidance or evasion” to be designated as a “reportable transaction.” 26 U.S.C. § 6707A(c)(1). A “material advisor” with respect to a reportable transaction (as defined in 26 U.S.C. § 6111(b)(1)) has transaction-related disclosure and recordkeeping obligations under the Code. See 26 U.S.C. §§ 6111, 6112. A “participant” in a reportable transaction has a disclosure requirement as well. See 26 C.F.R. § 1.6011-4. One type of reportable transaction is a “listed transaction,” defined as being “the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction.” 26 U.S.C. § 6707A(c)(2).

On December 23, 2016, the IRS issued the Notice, titled “Listing Notice — Syndicated Conservation Easement Transactions.” ECF No. 1-1. The Notice announced that the syndicated conservation easement transaction described in Section 2 of the Notice, as well as substantially similar transactions, were listed transactions subject to disclosure and recordkeeping requirements. The Notice explained that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. Under these schemes, an investor receives promotional materials that offer prospective investors in a pass-through entity the possibility of a charitable contribution deduction that equals or exceeds an amount that is two and one-half times the amount of the investor's investment. The promoters “syndicate” the investors' ownership interests through a partnership or other pass-through entity created to hold title to the property on which the conservation easement is to be donated. The promoters obtain an appraisal that inflates the property's value based on unreasonable factual assumptions and conclusions about the property's development potential. The entity then donates a conservation easement on the property. The resulting charitable deduction, representing the difference between the inflated appraisal and the reduced value of the encumbered property, passes through the entity to be allocated among the entity's investors. This results in exaggerated tax benefits to the investors that are worth significantly more than the investors' initial investments.

Since 2019, syndicated conservation easements have been on the IRS's “dirty dozen” list of tax schemes. As Commissioner Charles P. Rettig commented in 2019: “Abusive syndicated conservation easement transactions undermine the public's trust in private land conservation and defraud the government of revenue.” https://www.irs.gov/newsroom/irs-increases-enforcement-action-on-syndicated-conservation-easements [https://perma.cc/M9N7-6CJL]. A 2021 IRS release added that “promoters take a provision of tax law for conservation easements and twist it . . . to game the system and generate inflated and unwarranted tax deductions.” https://www.irs.gov/newsroom/irs-wraps-up-its-2021-dirty-dozen-scams-list-with-warning-about-promoted-abusive-arrangements [https://perma.cc/7J2H-YGSV]. And again, just this month, the IRS warned that abusive syndicated conservation easements “do nothing more than game the tax system with grossly inflated tax deductions and generate high fees for promoters.” https://www.irs.gov/newsroom/irs-wraps-up-2022-dirty-dozen-scams-list-agency-urges-taxpayers-to-watch-out-for-tax-avoidance-strategies [https://perma.cc/6BW3-737D]. “In the last five years, the IRS has examined many hundreds of syndicated conservation easement deals where tens of billions of dollars of deductions were improperly claimed. It is an agency-wide effort using a significant number of resources and thousands of staff hours.” Id.

GBX is a material advisor with respect to syndicated conservation easement transactions identified as listed transactions in Section 2 of the Notice. GBX alleges that it is injured by the Notice due to costs incurred by both itself and others in complying with the listed transaction requirements. Complaint ¶¶ 41-44. It filed this action on March 11, 2022, asserting that the IRS violated the APA by promulgating the Notice without following notice-and-comment procedures. Id. ¶ 63. The filing came only eight days after the Sixth Circuit's decision in Mann, which reversed the district court and found that another IRS listed transaction notice (IRS Notice 2007-83, 2007-45 I.R.B. 960) violated the APA. 27 F.4th at 1148. Relying on Mann (Complaint ¶ 6), GBX asks that the Court both “[d]eclare Notice 2017-10 unlawful and set it aside” and “[p]ermanently enjoin enforcement of Notice 2017-10.” Id. (Prayer for Relief).

The United States has conceded that the analysis in Mann applies to the Notice because Mann is controlling precedent within the Sixth Circuit. ECF No. 15 (Answer, response to ¶ 6). However, the United States reserves the right to dispute the correctness of Mann, and to assert the validity of the Notice and other listed transaction notices, in cases outside the Sixth Circuit. See id. For instance, on June 13, 2022, the United States filed a motion for summary judgment in Green Rock LLC v. IRS, Case No. 2:21-cv-1320 (N.D. Ala.), contending that Mann was wrongly decided and that the Notice is valid. Exhibit 1 attached to this brief (Green Rock motion).

GBX has moved for summary judgment that the Notice “should be vacated in whole and not set aside as to Plaintiff only.” ECF No. 17. In other words, GBX asks that the Notice be set aside as to all taxpayers nationwide. The United States cross-moves to limit relief to GBX only.

III. Argument

The Court should grant relief only as to GBX for the five reasons discussed below. First, no broader relief is mandated by the text of the APA or any controlling Sixth Circuit authority. Second, the expansive judgment sought by GBX would exceed the Court's Article III power because GBX lacks standing to sue based on alleged harm to non-parties. Third, GBX's proposal would go beyond the traditional scope of the equitable remedies it requests. Fourth, the “set aside” language in 5 U.S.C. § 706 is part of a sovereign-immunity waiver and so must be strictly construed in the government's favor. Fifth, restricting relief to the party before the Court fosters the development of the law and the healthy functioning of the judicial system.

A. The APA Does Not Mandate Nationwide Relief for All Taxpayers

Because this Court must find the Notice invalid based on controlling Sixth Circuit authority in Mann, the APA, in 5 U.S.C. § 706, instructs that the Court “shall . . . hold unlawful and set aside” the Notice. But on the question of the scope of the “setting aside” — whether framed as to whom the Notice shall be set aside or where it shall be set aside — § 706 is silent.

GBX is wrong to assert that Mann “controls the result here” in this respect. ECF No. 17-1 at 9. Although Mann does not expressly address the scope of relief, it does, for its explanation of “set aside,” cite the 2018 Sixth Circuit APA case of Tennessee Hospital Association v. Azar, 908 F.3d 1029. See Mann, 27 F.4th at 1143. In Tennessee Hospital, the court affirmed a decision that a Medicare rule was improperly promulgated without notice and comment, but it expressly limited the scope of the remedy to the plaintiffs only. 908 F.3d at 1046-47. This limitation refutes GBX's apparent belief that Tennessee Hospital supports its claim for broader relief (see ECF No. 17-1 at 9) and suggests Mann similarly intended only plaintiff-specific relief.¹

The uncertainty over the effect of Mann belies GBX's blithe assertions that “the law is clear” and the United States' position is “highly unusual and bizarre.” ECF No. 17-1 at 4. In reality, the law is unsettled, and the meaning of “set aside” in § 706 is hotly contested among judges and scholars.² Most importantly for this Court's consideration, while there is no controlling Sixth Circuit precedent on the issue, two recent opinions, one from the Sixth Circuit and one from this District, address the issue and offer sound analyses supporting the government.

The most recent Sixth Circuit pronouncement is Chief Judge Sutton's April 12, 2022 concurring opinion in Arizona v. Biden, a case that granted a stay pending appeal of a nationwide injunction of the Department of Homeland Security's immigration enforcement priorities memorandum. His opinion comments directly on the issue now before the Court and expressly disagrees with GBX's view that “set aside” requires nullifying agency action nationwide:

The [APA], it is true, says that a reviewing court may “hold unlawful and set aside” agency actions that violate the law. 5 U.S.C. § 706(2). But that raises a question; it does not answer it. The question is whether Congress meant to upset the bedrock practice of case-by-case judgments with respect to the parties in each case or create a new and far-reaching power through this unremarkable language. We presume that statutes conform to longstanding remedial principles. Nken v. Holder, 556 U.S. 418, 433 (2009); Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982). And it is far from clear that Congress intended to make such a sweeping change. Compare [Samuel L. Bray, Multiple Chancellors: Reforming the National Injunction, 131 Harv. L. Rev. 417, 438 n.121 (2017)]; and John Harrison, Section 706 of the Administrative Procedure Act Does Not Call for Universal Injunctions or Other Universal Remedies, 37 Yale J. Reg. Bull. 37, 41–47 (2020); with Mila Sohoni, The Power to Vacate a Rule, 88 Geo. Wash. L. Rev. 1121, 1191–92 (2020). Use of the “setting aside” language does not seem to tell us one way or another whether to nullify illegal administrative action or not to enforce it in the case with the named litigants. For that reason, I would be inclined to stand by the long-understood view of equity — that courts issue judgments that bind the parties in each case over whom they have personal jurisdiction.

Arizona v. Biden, 31 F.4th 469, 484 (6th Cir. Apr. 12, 2022) (Sutton, C.J., concurring). Notably, Chief Judge Sutton also wrote the Mann opinion, and his Arizona concurrence further indicates that his use of “set aside” in Mann was not intended to provide relief to non-parties.

Judge Calabrese's decision in Skyworks, Ltd. v. Centers for Disease Control and Prevention, 542 F. Supp. 3d 719 (N.D. Ohio June 3, 2021), also supports the United States' position. That case concerned the moratorium on evictions due to the COVID-19 pandemic, which Judge Calabrese found to have exceeded the CDC's authority. Plaintiffs then sought “a ruling on whether the Court's judgment binds only the parties to this action or applies more broadly and, if so, how far.” Id. at 722. Noting that “[t]his dispute implicates complex legal issues and doctrines” that are “the subject of debate,” id., Judge Calabrese canvassed relevant authorities, finding “that the scope of relief under the [APA] in a case like this remains unsettled.” Id. at 728. For one, “the statutory text directing a reviewing court to 'hold unlawful and set aside agency action' does not directly resolve the parties' disagreement over the scope of the remedy” because it leaves open “the question as to whom the agency action shall be set aside — only the parties, all affected by the agency action, or some group in between, perhaps one limited by the geographic limits of the Court's jurisdiction.” Id. at 729. Ultimately, Judge Calabrese declined to order universal relief, concluding that “the lack of a firm foundation for nationwide vacatur in the language, structure, and history of the [APA] is striking.” Id. at 735.

GBX completely ignores these recent opinions, instead selectively citing out-of-circuit law, primarily from the D.C. Circuit, that it finds more advantageous. Most prominently, GBX relies on National Mining Association v. U.S. Army Corps of Engineers, 145 F.3d 1399, 1409 (D.C. Cir. 1998), citing that case five times, as well as several other cases that parrot National Mining for the proposition that “the ordinary result” for an APA violation is universal vacatur.³ But, “[u]nlike the Ninth and D.C. Circuits, the Sixth Circuit is not among those that have adopted a rule like National Mining or otherwise provided a precedential interpretation of Section 706.” Skyworks, 542 F. Supp. 3d at 734. In fact, “the Sixth Circuit has previously acted under the rule that agency regulations like the one in National Mining Ass'n may be stricken on a circuit-by-circuit basis, and independently by each circuit.” Biggs v. Quicken Loans, Inc., 990 F. Supp. 2d 780, 786 (E.D. Mich. 2014).

Consistent with the well-reasoned analyses in Judge Sutton's concurrence in Arizona and Judge Calabrese's decision in Skyworks, the ambiguity in the “set aside” language of § 706 should be resolved in the United States' favor for the four additional reasons discussed below.

B. GBX Lacks Standing to Seek Relief as to Non-Parties

“[S]tanding is not dispensed in gross.” DamilerChrysler Corp. v. Cuno, 547 U.S. 332, 353 (2006) (quotation omitted). “To the contrary, a plaintiff must demonstrate standing for each claim he seeks to press and for each form of relief that is sought.” Town of Chester, N.Y. v. Laroe Estates, Inc., 137 S. Ct. 1645, 1650 (2017) (quotation omitted). For instance, a plaintiff “cannot sidestep Article III's requirements by combining a request for injunctive relief for which he has standing with a request for injunctive relief for which he lacks standing.” Salazar v. Buono, 559 U.S. 700, 731 (2010) (Scalia, J., concurring in the judgment). By the same token, “[a] plaintiff's remedy must be tailored to redress the plaintiff's particular injury.” Gill v. Whitford, 138 S. Ct. 1916, 1934 (2018). Applied here, this means that the proper remedy is to set aside the Notice as to GBX, thus redressing GBX's own asserted injury based on its listed transaction obligations, but not as to any non-parties. See ECF No. 17-1 at 12 (admitting that “an order setting aside Notice 2017-10 as to GBX would technically relieve GBX of its own filing obligation”).

In resisting this outcome, GBX has taken two slightly different positions with regard to standing over the course of this litigation, but neither withstands scrutiny.

At the outset, plaintiff's Complaint and motion for speedy hearing (ECF No. 7) advanced the theory that GBX was injured by reporting and recordkeeping requirements imposed against other taxpayers. This was because of GBX's own business decision to take on the contractual obligation to prepare tax forms for those other taxpayers with respect to GBX-promoted transactions. See Complaint ¶ 42 (complaining about compliance costs of “other material advisors” as well as “investors who participate” in the transactions GBX sets up); see also ECF No. 10 at 3 (alleging injuries to “Plaintiff and many other advisors and taxpayers”).

But any such injury is caused by GBX's own choice to enter into these alleged contractual relationships and is not fairly traceable to the government. It is well established that a plaintiff's standing cannot be the result of “the independent action of some third party not before the court,” such as some unnamed taxpayer who demanded that GBX agree to prepare its tax forms. Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 42 (1976). Nor is harm that is “self-inflicted” actionable, Clapper v. Amnesty Intern. USA, 568 U.S. 398, 418 (2013), and that restriction would apply if GBX had gratuitously offered to accept the burden of preparing these tax forms for others. Either way, GBX does not have standing based on the disclosure or recordkeeping obligations of other taxpayers. See Ammex, Inc. v. United States, 367 F.3d 530, 533 (6th Cir. 2004) (no standing to challenge excise tax assessed against third party, since “alleged injury . . . in the form of increased fuel costs was not occasioned by the Government”).⁴

Even if the Court were open to this theory of standing, the record does not support it. GBX initially sought relief for a “constellation” of GBX and other unnamed taxpayers with whom GBX does business, but GBX abandoned this argument when the United States asked it to identify these other taxpayers and to substantiate their obligations and contracts. As a result, there is no evidence to support GBX's bare assertion — and we do not concede — that GBX itself is harmed by disclosure and recordkeeping requirements applicable to non-parties. Thus, the Court must reject standing to assert those supposed injuries and decline to expand a remedy to reach them. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (standing is “an indispensable part of the plaintiff's case” on which “plaintiff bears the burden of proof.”).

Now, on summary judgment GBX now makes a slightly different version of the “constellation” argument but runs into the same problem. According to GBX, the government's proposed judgment is “unworkable” because “a material advisor such as GBX must file Form 8918 with” the IRS Office of Tax Shelter Analysis to obtain a reportable transaction number and then “is required to provide” that number “to all taxpayers and other material advisors” involved in the transaction. ECF No. 17-1 at 11-12; see 26 C.F.R. § 301.6111-3(d)(2). Consequently, if GBX stops requesting reportable transaction numbers, then it claims that “each of these parties in GBX's transactions would be without the necessary information to comply with Notice 2017-10 and would be subject to civil penalties and criminal prosecution.” ECF No. 17-1 at 12.

For one thing, the claim is false. To the extent GBX already filed Form 8918 with respect to certain transactions, it has received reportable transaction numbers for those transactions and can provide them to participants and other material advisors (if not done already).⁵ Regardless, the requirement for GBX to provide the number arises in 26 C.F.R. § 301.6111-3(d)(2), which says the IRS will issue to the material advisor a number, and the material advisor must provide the number to all taxpayers and other material advisors for whom the material advisor (here, GBX) acts as a material advisor. However, the IRS will not issue GBX a number if GBX does not file a Form 8918, and there would thus be no reportable transaction number to provide. With respect to participants, § 1.6011-4(d) states, “[i]f a taxpayer receives one or more reportable transaction numbers for a reportable transaction, the taxpayer must include the reportable transaction number(s) on the Form 8886 (or a successor form).” By its terms, then, the requirement only applies “if” a number is received. A taxpayer who does not receive a reportable transaction number — as GBX claims would be the case for participants in its transactions when GBX no longer files Form 8918 — is under no obligation to report one.

Even if the allegation were true, GBX would still have no standing to pursue a remedy for alleged injury to other “parties in GBX's transactions” (ECF No. 17-1 at 12) who GBX (incorrectly) believes would be vulnerable to penalties. That is because GBX “must assert [its] own legal rights and interests, and cannot rest [its] claim to relief on the legal rights or interests of third parties.”⁶ Warth v. Seldin, 422 U.S. 490, 499 (1975). Again, a “plaintiff's remedy must be tailored to redress the plaintiff's particular injury.” Gill, 138 S. Ct. 1916, 1934 (2018). As the Supreme Court has explained, “Article III grants federal courts the power to redress harms that defendants cause plaintiffs, not a freewheeling power to hold defendants accountable for legal infractions.” TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2205 (2021) (quotation omitted); see also California v. Texas, 141 S. Ct. 2104, 2115 (2021) (“Remedies ordinarily operate with respect to specific parties” and not “on legal rules in the abstract” (quotation omitted)).

This standing principle remains relevant in the APA context. In Summers v. Earth Island Institute, 555 U.S. 488 (2009), the Supreme Court held that the plaintiffs lacked standing to challenge Forest Service regulations under the APA after the parties had resolved the controversy regarding the application of the regulations to the project that had caused the plaintiffs' alleged injury. Noting that the plaintiffs' “injury in fact with regard to that project ha[d] been remedied,” id. at 494, the Court held that to allow the plaintiffs to challenge the regulations “apart from any concrete application that threatens imminent harm to [their] interests” would “fly in the face of Article III's injury-in-fact requirement.” Id.

In sum, GBX's injury is based on its own obligations, and that injury is fully remedied by a judgment setting the Notice aside as to GBX only. Because GBX lacks standing to pursue any further relief as to non-parties, the Court should not extend its jurisdiction to grant such relief.

C. Setting Aside the Notice as to GBX Only Is Consistent with the Traditional Limits on the Scope of Equitable Remedies

Complementing Article III's constitutional limit on judicial power, the traditional understanding of the courts' equity jurisdiction imposes similar constraints. That understanding is that “[e]quitable remedies, like remedies in general, are meant to redress the injuries sustained by a particular plaintiff in a particular lawsuit.” New York, 140 S. Ct. at 600 (Gorsuch, J., concurring). By contrast, universal remedies, such as GBX seeks, “share the same basic flaw — they direct how the defendant must act toward persons who are not parties to the case.” Id.

The injunctive and declaratory relief sought by GBX are equitable remedies. See Salazar, 559 U.S. at 714; In re Caudill, No. 20-3834, 2020 WL 6748203 at *1 (6th Cir. Oct. 30, 2020); Skyworks, 542 F. Supp. 3d at 723. Moreover, 5 U.S.C. § 703, titled “Form and venue of proceeding,” provides that GBX can pursue APA relief via “any applicable form of legal action, including actions for declaratory judgments or writs of prohibitory or mandatory injunction,” as GBX has done in its Complaint. “[T]raditional equitable principles” thus “control the grant of declaratory or injunctive relief.” Webster v. Doe, 486 U.S. 592, 604-05 (1988).

With respect to GBX's request for a declaratory judgment, the long-understood view of equity dictates that the scope of relief must be limited to GBX only. The Third Circuit recently explained that “declaratory judgments, like equitable remedies, operate on a 'specific party,' and 'do not simply operate on legal rules in the abstract.'” Johnson v. Governor of New Jersey, No. 21-1795, 2022 WL 767035 at *2 (3d Cir. Mar. 14, 2022) (quoting California v. Texas, 141 S. Ct. at 2115). The Declaratory Judgment Act, 28 U.S.C. § 2201 (cited in Complaint ¶ 11), expressly limits any judgment to declaring “the rights and other legal relations of any interested party seeking such declaration.” It “does not contain any provisions indicating that declaratory judgments are authoritative vis-à-vis nonparties to the litigation.” Mass. Delivery Ass'n v. Coakley, 671 F.3d 33, 48 n.12 (1st Cir. 2012). In Skyworks, Judge Calabrese reviewed the relevant authority and concluded that “a declaratory judgment binds the parties, and only the parties, wherever they may be.” 542 F. Supp. 3d at 728. With GBX the only “interested party” seeking declaratory relief here, it follows that a declaratory judgment must be as to GBX only.

Established limits on injunctive relief also weigh against GBX's request.⁷ The general rule is that injunctions must “be no more burdensome to the defendant than necessary to provide complete relief to the plaintiffs.” Madsen v. Women's Health Ctr., Inc., 512 U.S. 753, 765 (1994) (quotation omitted). Courts often avoid extending injunctions to cover non-parties for this reason. In Virginia Society for Human Life, Inc. v. FEC, 263 F.3d 379 (4th Cir. 2001), the court vacated an injunction that precluded an agency from enforcing, against anyone, a regulation that violated the First Amendment. It explained that an injunction covering the plaintiff “alone adequately protects it from the feared prosecution,” and that “[p]reventing the [agency] from enforcing [the regulation] against other parties in other circuits does not provide any additional relief to [the plaintiff].” Id. at 393. Likewise, in Los Angeles Haven Hospice, Inc. v. Sebelius, 638 F.3d 644 (9th Cir. 2011), even though the Ninth Circuit held that an agency's regulation was facially invalid, it nevertheless vacated the district court's injunction insofar as it barred the agency from enforcing the regulation against entities other than the plaintiff. Id. at 664.⁸

A more expansive approach that would extend an injunction to cover non-parties overlooks that “[t]he law already has a mechanism for applying a judgment to third parties,” namely a class action under Fed. R. Civ. P. 23, which GBX has not invoked. Arizona, 31 F.4th at 484 (Sutton, C.J., concurring); see also Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (class action is an “exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only” (quotation omitted)). Here, declaring the Notice unlawful and setting it aside as to GBX fully remedies the harm to GBX, making an injunction applicable to non-parties who are not represented through a class action both unnecessary and improper. See Monsanto Co. v. Geerston Seed Farms, 561 U.S. 139, 163 (2010) (“Respondents in this case do not represent a class, so they could not seek to enjoin such an order on the ground that it might cause harm to other parties.”); see also Alvarez v. Smith, 558 U.S. 87, 92-93 (2009) (declining to address “an abstract dispute about the law” because, in absence of a class action, the “only disputes relevant here are those between these six plaintiffs and the State's Attorney . . . and those disputes are now over”).⁹

GBX's summary judgment brief wrongly suggests that this body of law regarding injunctions should not apply because “injunctions and vacaturs are distinct remedies” and GBX only seeks vacatur of the Notice. ECF No. 17-1 at 10. There are several problems with its argument. First, GBX has plainly sought injunctive relief here: the title of GBX's Complaint seeks “injunctive” relief, and the prayer for relief asks the Court to “[p]ermanently enjoin enforcement” of the Notice. Second, APA vacatur is itself an equitable remedy and must conform to the traditional principles of equity jurisdiction described above. See Black Warrior Riverkeeper, Inc. v. U.S. Army Corps of Eng'rs, 781 F.3d 1271, 1290 (11th Cir. 2015) (“The decision whether to vacate agency action falls within our broad equitable discretion.”).

Third and most importantly, it is untenable for plaintiff to claim that vacatur is a wholly distinct remedy not subject to traditional limits on injunctive relief while simultaneously using it to achieve the same effect as an injunction. “If a district court could, in every case, effectively enjoin agency action simply by recharacterizing its injunction as a necessary consequence of vacatur, that would circumvent the Supreme Court's instruction in Monsanto that 'a court must determine that an injunction should issue under the traditional four-factor test.'” Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs, 985 F.3d 1032, 1054 (D.C. Cir. 2021) (quoting 561 U.S. at 158).¹⁰ Despite the semantic wordplay about vacatur, then, GBX still seeks equitable relief comparable to an injunction and the scope of relief must be limited.

D. Section 706's Instruction to “Set Aside” Is Part of a Waiver of Sovereign Immunity That Must Be Strictly Construed in the Government's Favor

The scope of potential relief in this case is further constrained by the text of the APA and the canon of statutory construction that sovereign-immunity waivers are read narrowly.

The APA's immunity waiver in 5 U.S.C. § 702 (“Right of Review”), under which GBX brings this suit (see Complaint ¶ 48), says “[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action . . . is entitled to judicial review thereof.” This does not “affect[ ] other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground.” § 702. Coupled with § 703's guidance that the “form of legal action” is one for declaratory and injunctive relief, the APA thus incorporates the limits on Article III standing and equity jurisdiction described above. These limits logically restrict the “Scope of review” under § 706.¹¹

Like any other waiver of sovereign immunity, § 706 must “be strictly construed, in terms of its scope, in favor of the sovereign.” Dep't of Army v. Blue Fox, Inc., 525 U.S. 255, 261 (1999); see also Portsmouth Ambulance, Inc. v. United States, 756 F.3d 494, 498 (6th Cir. 2014) (“All waivers of federal sovereign immunity must be unequivocally expressed in the statutory text, must be strictly construed in favor of the United States, and may not be enlarged beyond what the language of the statute requires.”). Applying this rule, the Supreme Court in FAA v. Cooper, 566 U.S. 284, 299 (2012), interpreted the Privacy Act to preclude suits for emotional damages based on a narrow reading of the term “actual damages,” because Congress did not “unequivocally” allow such suits and the Court could not “expand the scope of Congress' sovereign immunity waiver[.]” Id.; see also Estate of Smith ex rel Richardson v. United States, 509 F. App'x 436, 440 (6th Cir. 2012). Likewise here, the “hold unlawful and set aside” language in § 706 does not “unequivocally” extend to non-parties, and that means the government's more restrictive reading must prevail.

GBX cannot overcome the narrow-construction canon of sovereign immunity with its dictionary-based argument concerning the phrase “set aside.” See ECF No. 17-1 at 5-6. That phrase may be used, and has been used since before the APA's enactment, to signify either the annulment of a legal object or — as the Court should do here — ignoring it for the purpose of deciding the rights of the parties in a particular case. See Harrison, supra, 37 Yale J. Reg. Bulletin 37, 42-45 (2020).¹²

In the end, when considering whether § 706 authorizes nationwide relief here, the Court should follow Judge Calabrese's reasoning: “Based on the lack of clear answer in the language, structure, and history of the Administrative Procedure Act and the absence of clear precedent, the Court is not prepared to extend the remedy as far as Plaintiffs request.” Skyworks, 542 F. Supp. 3d 719, 735–36; see also CASA de Md., Inc. v. Trump, 971 F.3d 220, 262 n.8 (4th Cir.), reh'g en banc granted, 981 F.3d 311 (4th Cir. 2020), voluntarily dismissed prior to hearing (“[T]he position that § 706 even authorizes, much less compels, nationwide injunctions is baseless.”).

E. The United States Should Be Permitted to Dispute the Analysis in Mann and Defend the Validity of the Notice in Other Jurisdictions

Finally, the healthy functioning of the judicial system would be supported by the United States' form of judgment as opposed to the nationwide relief preferred by plaintiff.

Allowing litigation of an issue in different forums is necessary to provide reviewing courts with diverse perspectives and well-reasoned analyses. See United States v. Mendoza, 464 U.S. 154, 160 (1984). The Supreme Court has observed that allowing parties to assert nonmutual collateral estoppel against the government — the functional equivalent of a nationwide vacatur of an agency rule — “would substantially thwart the development of important questions of law by freezing the first final decision rendered on a particular issue.” Id.; see also Hawaii, 138 S. Ct. at 2425 (Thomas, J., concurring) (“[Nationwide injunctions] are beginning to take a toll on the federal court system — preventing legal questions from percolating through the federal courts, encouraging forum shopping, and making every case a national emergency for the courts and for the Executive Branch.”); Arizona v. Evans, 514 U.S. 1, 23 n.1 (1995) (Ginsburg, J., dissenting) (“[W]hen frontier legal problems are presented, periods of 'percolation' in, and diverse opinions from, state and federal appellate courts may yield a better informed and more enduring final pronouncement by this Court.”).

Allowing the United States, in cases outside the Sixth Circuit, to continue litigating APA challenges to the Notice, as well as other similar IRS listed transaction notices, will foster further development of the law and aid the eventual decision-making of the appellate courts. In recognition of these interests, a recent Sixth Circuit panel decision directed a district court in an APA case that “the scope of the injunction . . . may not exceed the bounds of the four states within the Sixth Circuit's jurisdiction.” Gun Owners of America, Inc. v. Garland, 992 F.3d 446, 474 (6th Cir. 2021), vacated on other grounds, 19 F.4th 890 (6th Cir. 2021) (en banc).

Entering a nationwide remedy would cut off this process by preventing the government from having a second chance to litigate an issue it lost in a single court, an outcome at odds with Mendoza. This would incentivize forum shopping by plaintiffs, who need only find a single district judge to effectively nullify decisions of all other lower courts by barring application of a policy in any district nationwide. New York, 140 S. Ct. at 601 (Gorsuch, J., concurring). It would also require the United States to prevail in every suit while a plaintiff could derail agency action throughout the country with a single victory. See id.

The National Mining opinion, on which GBX most heavily relies, actually conforms to this reasoning. In that case, the D.C. Circuit, citing Mendoza, expressed concern that a “broad injunction” would harm the government's interest to “relitigate issues in multiple circuits.” 145 F.3d at 1409. The court relied on a permissive venue provision allowing review in the District of Columbia, regardless of the location of parties and injury, to anticipate “a flood of duplicative litigation.” See id. The court explained that the breadth of its injunction was a “consequence of the venue rules in combination with the APA's command” to set aside. See id. at 1410 (emphasis added). It recognized that other circuits (such as the Sixth) “need not fear a flood of relitigation since venue restrictions would exclude many would-be plaintiffs from access to the invalidating court.” Id. at 1409-1410. Indeed, this concern underlies many D.C. Circuit APA remedy rulings, which often arise under venue provisions allowing (if not requiring) actions to be brought in the District of Columbia regardless of where the case arises. In light of this background to the case law on which GBX most heavily relies, GBX's worries about “thousands of cases” and “waste of judicial resources” is greatly overstated. ECF No. 17-1 at 11, 13. Further, the possibility that issues might be relitigated in multiple circuits is a salutary feature of our judicial system.

The possibility that the government might wish to relitigate the validity of the Notice is not an abstract consideration. As noted above, there is another APA lawsuit currently pending in the Northern District of Alabama challenging the Notice. That case is Green Rock, LLC v. IRS, Case No. 2:21-cv-1320 (N.D. Ala.), and the United States filed a motion for summary judgment on June 13, 2022, contending that Mann was wrongly decided and should not be controlling outside the Sixth Circuit. See Ex. 1. The judgment that GBX is asking for would effectively deprive the Alabama court of the opportunity to weigh in on these issues and to decide for itself. Several other APA challenges to IRS listed transaction notices have been filed in the wake of Mann as well, both within and without the Sixth Circuit. The government should be allowed to make its arguments in these other cases, and the other judges should be allowed to have their say.

IV. Conclusion

For the above reasons, the Court should deny GBX's summary judgment motion, grant the United States' cross-motion, and enter judgment setting aside the Notice as to GBX only.

Respectfully Submitted,

DAVID A. HUBBERT
Deputy Assistant Attorney General
U.S. Department of Justice, Tax Division

EDWARD J. MURPHY
RYAN D. GALISEWSKI
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 55
Washington, D.C. 20044
Tel: (202) 307-6064/(202) 305-3719
Fax: (202) 514-5238
Edward.J.Murphy@usdoj.gov
Ryan.D.Galisewski@usdoj.gov