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TAX ANALYSTS v. I.R.S.

May 21, 2001

TAX ANALYSTS, PLAINTIFF,
V.
INTERNAL REVENUE SERVICE, DEFENDANT.



The opinion of the court was delivered by: Kollar-kotelly, District Judge.

  MEMORANDUM OPINION
(Reconsideration of Earlier Opinion and Renewed Cross-Motions for Summary Judgment)

This case was brought pursuant to the Freedom of Information Act, 5 U.S.C. § 552, as amended, by Plaintiff Tax Analysts ("Plaintiff") seeking disclosure of various documents produced by the Internal Revenue Service's Office of Chief Counsel. Pending before the Court are Renewed Cross-Motions for Summary Judgment filed by Plaintiff and Defendant Internal Revenue Service ("Defendant" or "IRS"). In addition, Plaintiff has filed a Motion for Reconsideration of this Court's Order and Opinion of March 31, 2000. For the reasons stated below, the Court denies Plaintiffs Motion for Reconsideration and grants in part and denies in part Plaintiffs and Defendant's Renewed Cross-Motions for Summary Judgment.

I. BACKGROUND

When Plaintiff first filed this Freedom of Information Act ("FOIA") suit, it sought full disclosure of six categories of documents produced by the IRS's Office of Chief Counsel: Legal Memoranda ("LMs"), Litigation Guideline Memoranda ("LGMs"), Tax Litigation Bulletins ("TLBs"), Technical Assistances ("TAs"), Field Service Advice Monthly Reports ("FSA Reports"), and Pending Issue Reports ("PIRs"). This case has since been narrowed by the parties via stipulations and/or concessions as to certain issues. Congress further narrowed the case by enacting the Internal Revenue Service Reform and Restructuring Act of 1998 ("IRSRRA"), Pub.L. 105-206, 112 Stat. 685, 772 (codified as I.R.C. § 6110 (West Supp. 1999)), which deprives the Court of jurisdiction over Plaintiffs claims to the extent that they pertain to TLBs, TAs "to the field," and post-1985 LGMs. As a result of these developments, when cross-motions for summary judgment were first filed before the Court, the summary judgment record was quite complex.

Nevertheless, on March 31, 2000, this Court found that some of Plaintiffs claims were amenable to summary disposition and granted summary judgment in part ("March Order"). The Court granted IRS's motion for summary judgment and denied Plaintiffs motion for summary judgment as to those categories of documents that were unaffected by Congress enactment of IRSRRA: LMs, PIRs and FSA Reports. Both parties' motions were denied as moot with respect to TLBs, post-1985 LGMs, and TAs to the field, all three of which had been dismissed from the case in the context of the IRS's IRSRRA motion to dismiss. This left two remaining categories of documents: pre-1986 LGMs and TAs other than TAs to the field. As for the pre-1986 LGMs, because the motions for summary judgment were filed at a time when neither party could have anticipated that the Court would be forced to narrow its ruling along these lines, the Court denied without prejudice this portion of the motions for summary judgment with the expectation that the parties would renew their motions in light of the changed landscape of this litigation. As to TAs other than TAs to the field, the portion of the motions pertaining to TAs was granted in part, denied in part, and remanded to the IRS for an enhanced Vaughn index that would enable the Court to fully evaluate the claimed exemptions.

Subsequent to the Court's ruling, Defendant has conceded that as to the pre-1986 LGM's, the case is moot because these documents have already been released to Plaintiff. See Def. Praecipe Withdrawing Portion of Defs Renew. Summ. J. Brief. Therefore, the only remaining category of documents pending before the Court at this time is TAs other than TAs to the field. Accordingly, complying with the Court's request in the March Order, the IRS has submitted supplemental Vaughn a indexes and both parties have now further briefed the Court on the remaining issue of TAs other than TAs to the field in their respective Renewed Cross-Motions for Summary Judgment. In addition, however, Plaintiff has also filed a Motion for Reconsideration of the Summary Judgment Order of March 31, 2000, in regard to the Court's ruling that IRS is not bound by the so-called "harm" rule.

II. DISCUSSION

A. Reconsideration of March Order for Summary Judgment

Plaintiff asks this Court to reconsider its ruling in its March Order that IRS's foreseeable "harm" rule, articulated in the Internal Revenue Manual ("IRM") Part 1230 § 293(2), is not binding on IRS. Before addressing the merits of Plaintiffs motion, the Court will first consider whether it is timely. Plaintiff filed its Motion for Reconsideration almost seven months after this Court's Order on March 31, 2000. The question of whether the motion is timely is determined by whether it is governed by Federal Rule of Civil Procedure Rule 54(b) ("Rule 54(b)") or Federal Rule of Civil Procedure Rule 59(e) ("Rule 59(e)").

Defendant argues that Plaintiffs motion is untimely because it is subject to the ten — day limitation of Rule 59(e). See Defendant's Opposition to Plaintiffs Motion for Reconsideration ("Def. Opp. to Recons.") at 2-3. Under Rule 59(e), a party seeking reconsideration of a final or appealable judgment has ten days from the judgment in which to file and serve the opposing party with the motion to reconsider. See Fed.R.Civ.Pro. 59(e).*fn1 Plaintiff argues that its motion is timely because it falls within Rule 54(b). See Plaintiff Reply to Defendant's Opposition to Plaintiffs Motion for Reconsideration ("Pl. Reply for Recons.") at 1. Under Rule 54(b), a court may reconsider any order not certified for appeal when the order in question did not resolve all the claims of all parties in the action. See Fed.R.Civ.P. 54(b).*fn2 However, this Court cannot agree with Plaintiff that its Motion for Reconsideration is governed by Rule 54(b).

Motions to reconsider are governed by Rule 54(b) when such motions are filed after an interlocutory order and before the entry of a "final judgment." See Pivot Point International, Inc. v. Charlene Products, Inc., 816 F. Supp. 1286, 1287 (N.D.Ill. 1993) (citing Gridley v. Cleveland Pneumatic Co., 127 F.R.D. 102, 103 (M.D.Pa. 1989)). Motions to reconsider made after a final judgment or after a trial are governed by Rules 59(e) and 60(b).*fn3 See Pivot Point International, Inc., 816 F. Supp. at 1287. Therefore, the timeliness of Plaintiffs Motion for Reconsideration turns on whether this Court's March Order granting partial summary judgment was a final judgment. See id. If the March Order was final, the motion is governed by Rule 59(e) and is thus untimely. See id. at 1288. In contrast, if the March Order was not a final judgment, then the motion is governed by Rule 54(b) and although filed seven months after the Order, it may be timely.*fn4 See id.

Judgment is defined for the purposes of the Federal Rules of Civil Procedure in Rule 54(a): "`Judgment' as used in these rules includes a decree and any order from which an appeal lies." Fed. R.Civ.P. 54(a). Accordingly, at issue is whether this Court's March Order was appealable. Defendant argues that a FOIA suit constitutes a request for injunctive relief and thus an order granting partial summary judgment for the Government and denying Plaintiffs request for injunctive relief may be appealable under 28 U.S.C. § 1292 (a)(1). See Def. Opp. to Recons. at 2 (citing Safe Flight Instrument Corp. v. McDonnell-Douglas Corp., 482 F.2d 1086, 1093 (9th Cir. 1973) (denial of injunctive relief constitutes an order subject to an interlocutory appeal)). Section 1292 carves out a limited category of interlocutory orders that can be subject to appellate review. In particular, the provision allows appellate review of orders by a district judge "granting, continuing, modifying, refusing or dissolving injunctions. . . ." 28 U.S.C. § 1292 (a)(1). However, not every order of a district court denying injunctive relief is reviewable through an interlocutory appeal. See Center for National Security Studies v. Central Intelligence Agency, 711 F.2d 409, 411 (D.C.Cir. 1983). If the district judge's order has the practical effect of denying injunctive relief, an appeal is available under Section 1292(a)(1) when the order involves a decision directly addressing the merits of the case. See id. at 412. If the injunctive order fails to address the merits of the case, appeal will lie only if appellant can show some serious, perhaps irreparable, harm resulting from delay caused by denial of review. See id.

The initial question is whether the March Order granting partial summary judgment for IRS was a denial of injunctive relief. In Center for National Security Studies, the D.C. circuit court held that a court's function in a FOIA case, determining whether to order disclosure or to permit an agency to withhold requested documents, is clearly injunctive in nature. 711 F.2d at 412. Therefore, the March Order, granting summary judgment to IRS as to all categories of requested documents except for TAs other than TAs to the field, plainly had the practical effect of denying Plaintiff an injunction requiring the disclosure of the requested documents. See id. Furthermore, in granting summary judgment for IRS, this Court ruled on the merits as to the various requested documents. The Court conducted the weighing process of all evidence as required under Rule 56 of the Federal Rules of Civil Procedure and determined that no material issue of fact was in dispute. Clearly, in so doing, the Court ruled on the merits as to all documents except for TAs other than TAs to the field. See Center for National Security Studies, 711 F.2d at 413. It appears, therefore, that the Court's March Order is appealable under Section 1292(a)(1) since the Order was a denial of injunctive relief directly addressing the merits of the case.

However, the determination of whether an interlocutory appeal is permissible here, and ultimately, whether the Court's March Order was final, is further complicated because the March Order left pending one issue, namely whether Defendant must disclose TAs other than TAs to the field.*fn5 There is disagreement as to which interlocutory orders granting judgment to a party on a FOIA issue are immediately appealable.*fn6 However, the standard articulated by the D.C. circuit court is controlling for this Court. The D.C. circuit court has held that interlocutory appeals are allowed where the injunctive order affected "predominantly all" of the merits of the case. Center for National Security Studies, 711 F.2d at 413. (citing Laffey v. Northwest Airlines, Inc., 642 F.2d 578 (D.C.Cir. 1980)); I.A.M. Nat. Pension Fund Benefit Plan A v. Cooper Industries, Inc., 789 F.2d 21, 24, (D.C.Cir. 1986). In Center for National Security Studies, the district court had denied injunctive relief as to only one count without addressing the merits of the remaining eleven FOIA claims, and therefore, the appellate court reasoned that the district court's order resolved only a portion of the overall case, ultimately ruling that the order was not appealable. 711 F.2d at 412. In contrast, this Court's March Order denied injunctive relief as to all categories of documents and left pending only one sub-category — TAs other than TAs to the field. The Court's March Order affected predominantly all of the merits of the case, and as such was subject to immediate appeal, and therefore, was final. Accordingly, Plaintiffs Motion for Reconsideration should have been filed within the ten-day period required under Rule 59(e). Plaintiffs Motion for Reconsideration filed seven months after the March Order is untimely and therefore, Plaintiffs Motion must be denied.

In the alternative, the Court voluntarily revisits the question of whether the IRM is binding on IRS and again finds that it is not. Plaintiffs Motion for Reconsideration argues again — for the third time — that IRS bears the additional burden of demonstrating that it has complied with the so-called "harm" rule in the IRM.*fn7 See Plaintiffs Motion for Reconsideration of the Summary Judgment Order of March 31, 2000 ("Pl. Mot. for Recons.") at 1-2. This Court's March Order rejected Plaintiffs same argument and found that the relevant language of the IRM did not sufficiently demonstrate that IRS intended to be bound by the "rule." See Memorandum Opinion for Summary Judgment of March 31, 2000 ("Mem. Op. for Summ. J.") at 3 n. 8. Plaintiff asks the Court to reconsider its previous ruling arguing that because the August 31, 2000, revision of the IRM ("Revised IRM") now contains three references to the "harm" rule, instead of just one as in the old IRM, the Revised IRM evinces IRS's intention to be bound by the rule. Pl. Reply for Recons. at 4. The relevant provision of the Revised IRM provides,

"[t]he Commissioner of Internal Revenue issued a FOIA policy directive that the agency will assert FOIA exemptions (other than those required by law) only when it is determined that disclosure would significantly impede or nullify IRS actions in carrying out a responsibility or function. . . ."

Revised IRM 1.3.13.1(6) (emphasis added). The referenced policy directive states that IRS

"will grant a request under [FOIA]. unless: (a) the record is exempt from required disclosure under the FOIA; and (b) public knowledge of the information contained in the record would significantly impede or nullify IRS actions in carrying out a responsibility or function . . ."

Policy Statement P-1-192. This is the same language the Court previously held in its March Order to be insufficient to bind IRS.*fn8

As a general rule, an agency pronouncement of an internal policy, like the IRM here, is transformed into a "binding regulation" only if so intended by the agency. See Doe v. Hampton, 566 F.2d 265, 281-82 (D.C.Cir. 1977); Chiron Corp. and PerSeptive Biosystems, Inc. v. Nationol Trans. Safety Bd., 198 F.3d 935, 943-44 (D.C.Cir. 1999) (stating that the agency's intent to be bound is the determinative factor). An agency's intent, in turn, is "ascertained by an examination of the statement's language, the context, and any available extrinsic evidence." Padula v. Webster, 822 F.2d 97, 100 (D.C.Cir. 1987) (citing Doe, 566 F.2d at 281). The Court previously determined in its March Order that the IRM's language and the context did not demonstrate IRS's intent to bind itself, and neither the Revised IRM's language nor the context has changed sufficiently for the Court to come to a different conclusion.*fn9 The language of the Revised IRM language simply informs that a FOIA policy directive has been issued. See Revised IRM 1.3.13.1(6). The language of the Policy Statement itself is only a directory "will" rather than a mandatory "shall" or "must." Cf. Doe, 566 F.2d at 281. Again, the Court finds that the relevant language of the Revised IRM speaks not of mandatory binding "regulation," but merely of precatory internal procedures.

Plaintiff quotes two other provisions from the Revised IRM mentioning the "harm" rule and argues that the quoted language is mandatory. See Pl. Mot. for Recon. at 11-12. However, these provisions also seem to indicate that the IRM's "harm" rule is not binding on IRS. The first quoted provision states that the "[d]iscretionary exemption should not be asserted unless: [(a)] there is a substantial legal basis for withholding; and [(b)] a foreseeable harm can result from the disclosure." Revised IRM 1.3.13.7.1(5) (emphasis added). "Should" is directory, not mandatory, language. See Doe, 566 F.2d at 281. Although the second quoted provision uses the mandatory word "must," it simply refers back to the directory language of the discretionary disclosure policy of the Revised IRM 1.3.13.7.1(5). See Revised IRM 1.3.13.7.2.5(b)(5), ¶ (6) (stating that "records must be examined in light of the discretionary disclosure policy") (emphasis added). Furthermore, in light of the other provisions, which state that "the Counsel attorney is recommended to ascertain the foreseeable harm," the Court cannot agree with Plaintiff that the Revised IRM evinces IRS's intention to bind itself to the "harm" rule. See Revised IRM 1.3.13.7.2.5(b)(5) ¶ (7) and ¶ (8) (emphasis added). Accordingly, Plaintiffs Motion for Reconsideration is denied.

B. Renewed Cross-Motions for Summary Judgment

As a general rule, an agency must respond to a FOIA request for information concerning its records and make those records available to the requester, unless the records fit into one of several exceptions. See 5 U.S.C. § 552 (a)(3) and (b). "Summary judgment is available to the defendant in a FOIA case when the agency proves that it has fully discharged its obligations under the FOIA, after the underlying facts and the inferences to be drawn from them are construed in the light most favorable to the FOIA requester." Moore v. Aspin, 916 F. Supp. 32, 33 (D.D.C. 1996) (citing Weisberg v. Department of Justice, 705 F.2d 1344, 1350 (D.C.Cir. 1983)). The agency bears the burden of demonstrating the validity of any exemption that it asserts. See 5 U.S.C. § 552 (a)(4)(B); Beck v. Department of Justice, 997 F.2d 1489, 1491 (D.C.Cir. 1993) ("[c]onsistent with the purpose of the Act, the burden is on the agency to justify withholding requested documents").

As discussed above, on March 31, 2000, this Court granted IRS's motion for summary judgment as to most documents. However, the Court also ordered the parties to further brief the Court in regard to the one remaining category of documents — TAs other than TAs to the field. Accordingly, the parties filed renewed cross-motions, oppositions and replies on that remaining question. The Court finds that the pending issue regarding TAs other than TAs to the field is now amenable to summary disposition and grants in part and denies in part the two parties' renewed motions for summary judgment.

TAs are prepared by four technical divisions within the Office of Assistant Chief Counsel with the Office of Associate Chief Counsel (Domestic): the Passthroughs & Special Industries division, the Income Tax & Accounting division, the Corporate division, and the Financial Institutions & Products division. See Def. Stmt. of Material Facts ("Def.SMF") ¶ 81. These technical divisions prepare TAs in response to requests from many different offices for many different purposes. The IRS has attempted to group the TAs by requester. Id. ¶ 84. One such group, TAs to the "field-that is TAs to the district or regional offices of the IRS or the Office of Chief Counsel or Service Centers — has already been dismissed from the case. See Memorandum Opinion to Dismiss of March 31, 2000 ("Mem. Op. to Dismiss"). Four other groups of TAs remain: (1) TAs to program managers in the national office, (2) TAs to the component offices of the national Office of Chief Counsel ("intra-divisional TAs"), (3) TAs to specific taxpayers, and (4) TAs to federal and state government ...


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