ROBB EVANS & ASSOCIATES, LLC, AS RECEIVER, ETC., Plaintiff, Appellee,
UNITED STATES OF AMERICA, Defendant, Appellee. ROBB EVANS & ASSOCIATES, LLC, AS RECEIVER, ETC., Plaintiff, Appellant,
UNITED STATES OF AMERICA, Defendant, Appellee.
FROM THE UNIED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Michael A. Ponsor, U.S. District Judge]
[Hon. Kenneth P. Neiman, U.S. Magistrate Judge]
A. Allulis, Attorney, Tax Division, United States Department
of Justice, with whom Caroline D. Ciraolo, Principal Deputy
Assistant Attorney General, Tax Division, United States
Department of Justice, Teresa E. McLaughlin and Gilbert S.
Rothenberg, Attorneys, Tax Division, and Carmen M. Ortiz,
United States Attorney, were on brief, for the United States.
J. Vendler, with whom Morris Polich & Purdy LLP, Gregory
S. Duncan, Stephen G. Hennessy, Joseph S. Tusa, and Tusa P.C.
were on brief, for Robb Evans & Associates, LLC.
Lynch, Circuit Judge, Souter, Associate Justice,
and Selya, Circuit Judge.
appeals require us to construe and apply 26 U.S.C. §
1341(a), reproduced in the Appendix, a statutory provision
that addresses the situation of a taxpayer who pays taxes on
income that she must later restore because it is established
in a subsequent year that she did not have an unrestricted
right to the income. The statute permits such a taxpayer to
reduce her tax liability for the year of repayment by the
amount that her taxes in the year of inclusion would have
decreased had the restored funds been excluded from her
income in that year. But there is a catch: by its terms,
section 1341(a) requires that the taxpayer must have had what
appeared to be an unrestricted right to the income when she
first reported it.
the controversy over the meaning and application of section
1341(a) arises in the course of a tax-refund suit brought by
a court-appointed receiver. The court below, noting that
Congress had enacted section 1341 in a spirit of fairness,
fashioned a judicially created exception to the statute's
"unrestricted right" requirement. Applying that
judicially created exception, the court proceeded to deny the
government's motion to dismiss and granted a modicum of
relief. Both sides appeal. After careful
consideration of these appeals, we conclude that the district
court erred: that Congress, in the spirit of fairness,
tailored a statute to iron out a wrinkle in the Internal
Revenue Code does not give a court license to make the
application of the statute wrinkle-free. This conclusion
leads us to apply the luminously clear language of the
statute as written, sustain the government's appeal,
reject the cross-appeal, reverse the judgment below, and
remand for entry of judgment dismissing the tax-refund suit.
tax-refund suit has its genesis in the efforts of Robb Evans
& Associates, LLC, a court-appointed receiver (the
Receiver), acting on behalf of a class of defrauded persons
(the underlying plaintiffs), to collect judgments previously
rendered against a network of interlocking corporations and
their proprietors, John and Richard Puccio. The twists and
turns of the Puccios' fraudulent scheme are by now
well-documented. See, e.g.,
Zimmerman v. Epstein Becker &
Green, P.C. (Zimmerman V), 657 F.3d 80 (1st
Cir. 2011); Zimmerman v. Puccio
(Zimmerman IV), 613 F.3d 60 (1st Cir. 2010);
Zimmerman v. Cambridge Credit
Counseling Corp. (Zimmerman II), 409 F.3d 473
(1st Cir. 2005). We assume the reader's familiarity with
these opinions and with the district court's exegetic
accounts of the facts undergirding the class action
litigation. See Zimmerman v. Cambridge
Credit Counseling Corp. (Zimmerman III) 529
F.Supp.2d 254, 256-64 (D. Mass. 2008); Zimmerman
v. Cambridge Credit Counseling Corp.
(Zimmerman I), 322 F.Supp.2d 95, 96-98 (D. Mass.
2004). Consequently, we rehearse here only those
skeletal facts needed to put these appeals into workable
1996, the Puccio brothers formed Cambridge Credit Counseling
Corporation (CCCC), a non-profit corporation organized under
Massachusetts law. At around the same time, they formed
parallel non-profit corporations in Florida and New York.
These other corporations operated in much the same way as
CCCC and, for simplicity's sake, we refer to the three
non-profits, collectively, as CCCC.
held itself out as skilled in improving credit ratings and
trumpeted its ability to help financially strapped
individuals by creating "debt management plans" for
a fee. Under such a plan, an individual in straitened
circumstances would make a single monthly payment to CCCC,
and CCCC would (at least in theory) sprinkle payments around
to the individual's creditors. As part of its service,
CCCC aspired to "re-age" clients' debt, that
is, to persuade creditors to mark clients' accounts as
current in exchange for promises that CCCC would make regular
payments. Business boomed: from 1996 to 2004, CCCC harvested
over $250, 000, 000 from hopeful clients.
Puccio brothers likewise owned and controlled an array of
for-profit businesses, some of which provided back-office
support to the non-profit entities. The assets and operations
of these businesses were inextricably intertwined with those
of the non-profit entities: all of them shared management,
staff, office space, clients, and funds. For example, CCCC
freely transferred clients' accounts to its for-profit
brethren without bothering to notify the affected clients.
balloon went up in 2003, when the underlying plaintiffs
brought a class action against the Puccios and several of
their corporations (both for-profit and non-profit). Roughly
five years later, the district court granted summary judgment
in favor of the underlying plaintiffs on their state-law
consumer protection claims, Mass. Gen. Laws ch. 93A, and
their claims under the federal Credit Repair Organizations
Act (CROA), 15 U.S.C. § 1679 et seq. Judgment
was entered against the corporations in the amount of $259,
085, 983 and against the Puccios in the amount of $256, 527,
000. The Puccios unsuccessfully appealed. See Zimmerman
IV, 613 F.3d at 69, 76.
a judgment and realizing the fruits of that judgment are two
different things. Thus, the district court appointed the
Receiver and tasked it with collecting the judgments on
behalf of the underlying plaintiffs. For the most part,
though, the money had vanished into thin air: the Receiver
was able to recoup less than $2, 500, 000.3 Endeavoring to
boost this total, the Receiver filed a tax-refund claim for
$9, 387, 235. The essence of the Receiver's claim
• The Receiver can assert a refund claim on behalf of
certain taxpayers, namely, the Puccios and their for-profit
corporations, which were judgment debtors.
• In earlier years, those taxpayers reported as income,
and paid taxes on, monies that they euchred from the
• By virtue of the class-action judgment, the taxpayers
are now obligated to restore those monies to the underlying
plaintiffs (through the Receiver).
• The taxpayers may deduct those repayments,
see 26 U.S.C. § 162, and may reduce their tax
liability for the year of repayment by the amount that they
overpaid in the years that they originally reported the
income, see id. § 1341(a).
• Because the amounts of these deductions will exceed
the taxpayers' tax liability for the year of repayment,
refunds will be in order - and those refunds should be paid
to the Receiver.
of 2011, the Internal Revenue Service (IRS) denied the
tax-refund claim. The Receiver responded by bringing this
suit. See 28 U.S.C. § 1346(a)(1). The
government moved to dismiss, arguing among other things that
the Receiver (who stands in the taxpayers' shoes) was not
entitled to the benefit of section 1341(a) because it never
appeared to the taxpayers that they had an unrestricted right
to the funds fraudulently obtained from the underlying
plaintiffs. The district court denied the government's
motion to dismiss. Although it agreed that the taxpayers
never appeared to have an unrestricted right to the funds
reported as income, it nonetheless concluded that, as a
matter of equity, "the fraudulent conduct of the Puccios
should not be imputed to [the Receiver]." Rob Evans
& Assocs., LLC v. United States, 9
F.Supp.3d. 165, 169 (D. Mass. 2014). Accordingly, the court
denied the government's motion to dismiss, holding that
the government was obligated to honor the refund request.
See id. at 171.
Receiver, though, did not achieve a total victory. The court
limited the amount of the refund by holding that it must be
based on the amount the receiver had actually collected and
deposited into the Qualified Settlement Fund, not on the full
amount of taxes paid by the taxpayers during the relevant
years. See id. at 170-71; see also note 3,
deciding the motion to dismiss, the district court stayed the
case so that the Receiver could file administrative refund
claims for additional tax years. The IRS denied those claims,
and the Receiver, in its own words, filed its first amended
complaint in order to "include [claims for] additional
tax years." At that point, however, the Receiver
gratuitously added two other sets of allegations in the first
amended complaint: a constructive trust argument and a claim
that section 1341(a) did not require actual restoration of
the funds to the Qualified Settlement Fund as a condition
precedent to deductibility. The government filed an answer
and, since the district court's earlier adjudication of
the motion to dismiss had effectively resolved the essence of
the dispute, the parties jointly moved for the entry of final
judgment, reserving their rights to appeal. The court granted
the joint motion without substantive comment, relying on the
reasoning laid out in its prior decision on the motion to
dismiss. These timely appeals followed.
venue, the government's principal argument is that the
district court erred in allowing the Receiver access to the
balm of section 1341(a) because the taxpayers never appeared
to have an unrestricted right to the reported income. In
opposition, the Receiver starts by questioning our appellate
jurisdiction. Past that point, the Receiver asserts that the
taxpayers did have an apparent unrestricted right to the
reported income and, in all events, that the district court
did not err in fashioning an equitable exception to the
statutory "unrestricted right" requirement.
Finally, the Receiver submits that it is entitled to recoup
all taxes paid to the government under a constructive trust
theory. Before proceeding to more substantive matters, we
briefly address the Receiver's jurisdictional challenge.
Receiver's jurisdictional challenge is premised on the
contention that we lack jurisdiction because the government,
despite reserving its right to appeal in the consent
judgment, did not ...